SUBJECT TO COMPLETION, DATED DECEMBER 21, 1999
REGISTRATION NO. 333-89561
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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E-XACT TRANSACTIONS LTD.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<CAPTION>
COLORADO 7232 98-0212722
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
<S> <C> <C>
2410-555 WEST HASTINGS STREET 2410-555 WEST HASTINGS STREET CT CORPORATION
VANCOUVER, BRITISH COLUMBIA VANCOUVER, BRITISH COLUMBIA 1209 ORANGE STREET
CANADA V6H 4N6 CANADA V6H 4N6 WILMINGTON, DELAWARE 19801
(604) 691-1670 (604) 691-1670 USA
(302) 658-7581
(Address and telephone number of (Address of principal place of business) (Name, address and telephone number
principal executive offices) of agent for service)
</TABLE>
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Copies to:
LESTER R. WOODWARD, ESQ.
DAVIS, GRAHAM & STUBBS LLP
370 SEVENTEENTH STREET, SUITE 4700
DENVER, COLORADO 80202
(303) 892-9400
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APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this
Registration Statement.
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If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Aggregate Offering Registration
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Common Stock, par value Per Share(1) Price(1) Fee
$.001 per share........... 4,879,500 $ 1.00 $4,879,500 $1,288*
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(1) Estimated solely for the purpose of calculating the registration fee, based
upon the expected price at which the shares of common stock, $.001 par
value, are to be offered.
* Previously paid
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
EXPLANATORY NOTE
This registration statement covers (a) the primary public offering by
E-xact of 1,725,000 shares (the "Public Shares") of common stock, $.001 par
value, (b) 75,000 shares paid to the placement agent, Canaccord, as a corporate
finance fee, (c) 172,500 shares underlying a warrant paid to Canaccord in
consideration of Canaccord's commitment to sell all of the shares in the
offering, and (d) the concurrent offering on a delayed basis of 2,907,000 shares
of common stock by certain selling stockholders of E-xact. The primary
prospectus (the "Company Prospectus") covers the Public Shares being offered by
E-xact. An alternate prospectus (the "Selling Stockholders Prospectus") will be
used by the Selling Stockholders in connection with an offering by them for
their accounts of up to 2,907,000 shares of common stock held by such Selling
Stockholders. The Selling Stockholders Prospectus is identical to the Company
Prospectus, except for (1) alternate front and back cover pages, which alternate
cover pages are noted in the registration statement, (2) the sections entitled
"Summary," "Use of Proceeds," "Plan of Distribution" and "Risk Factors" which
alternate sections are indicated in the registration statement, and (3) the
sections entitled "Determination of Offering Price" and "Dilution" which
sections shall appear only in the Company Prospectus.
EXCHANGE RATES
All dollar amounts herein are stated in U.S. dollars except where
otherwise indicated. The following table reflects the rate of exchange for
Canadian dollars per U.S. $1.00 in effect at the end of the following periods
and the average rate of exchange during such periods, based on the Bank of
Canada average noon spot rate of exchange:
Year Ended Month Ended
December 31, 1998 November 30, 1999
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Rate at end of period: $ 1.5333 $ 1.4745
Average rate for period: $ 1.4831 $ 1.4675
<PAGE>
THIS INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT DELIVER THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 21, 1999
INITIAL PUBLIC OFFERING
PROSPECTUS
1,725,000 Shares
[GRAPHIC OMITTED]
E-XACT TRANSACTIONS LTD.
Common Stock, $.001 par value
--------------------------------------------
E-xact Transactions Ltd. is a software development company that offers
a simple, electronic commerce solution for real time transaction processing over
the Internet combined with a suite of value added merchant services. E-xact's
computer software allows computer controlled cash registers, personal computers,
personal computer based point-of-sale terminals, computer systems, and
proprietary product platforms to accept credit card payments and submit those
payments to processing centers for authorization and settlement.
Canaccord Capital Corporation, E-xact's agent, has entered into a firm
commitment agreement to sell all of the stock in this public offering at a price
of $1.00 per share, for aggregate gross proceeds of $1,725,000.
E-xact is concurrently registering 2,907,000 shares of its common stock
on behalf of its current shareholders.
E-xact has filed an application to list its common stock on the
facilities of the Canadian Venture Exchange.
UNDERWRITTEN BY:
CANACCORD CAPITAL CORPORATION
Total Per Share
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Public Offering Price $ 1,725,000 $ 1.00
Underwriter Commissions* $ 129,375 $ 0.075
Proceeds $ 1,595,625 $ 0.925
E-xact has paid Canaccord a sponsorship fee of $10,000, an
administrative fee of Cdn. $4,000 and granted to Canaccord a warrant
entitling it to purchase shares of common stock in the future. E-xact
also will pay Canaccord a corporate finance fee of 75,000 shares of
common stock.
--------------------------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" LOCATED AT PAGES 2 TO 4.
--------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is o, 1999
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY........................................................................1
RISK FACTORS...................................................................2
DILUTION.......................................................................5
USE OF PROCEEDS................................................................6
DESCRIPTION OF E-XACT..........................................................7
DESCRIPTION OF BUSINESS........................................................7
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................22
DESCRIPTION OF SECURITIES.....................................................25
PLAN OF DISTRIBUTION..........................................................28
DIRECTORS AND SENIOR OFFICERS.................................................30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................33
EXECUTIVE COMPENSATION........................................................34
CAUTIONARY STATEMENT CONCERNING
FORWARD LOOKING STATEMENTS....................................................35
DIVIDEND RECORD AND POLICY....................................................35
EXPERTS.......................................................................35
LEGAL MATTERS.................................................................35
WHERE YOU CAN FIND MORE INFORMATION...........................................36
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SUMMARY
This summary highlights selected information from this document and may
not contain all of the information that is important to you. To better
understand the offering, you should read this entire document and the documents
we have referred you to. Unless otherwise indicated, all dollar amounts are
expressed in U.S. dollars.
BUSINESS OF E-XACT: E-xact is a software development company that offers a
simple electronic commerce, also known as "e-commerce,"
solution for real- time transaction processing combined
with a suite of value added merchant services. E-xact's
software allows computer controlled cash registers,
personal computers, personal computer based point-of-sale
terminals, computer systems and proprietary product
platforms to accept credit card payments and submit those
payments to payment processing centers for authorization
and settlement.
E-xact's principal office is located at
2410-555 West Hastings Street; Vancouver,
British Columbia (Canada) V6H 4N6. The
telephone number
is (604) 691-1670.
OFFERING: The offering consists of 1,725,000 shares of common stock
to be offered to the public. Upon completion of the
offering, there will be approximately 7,627,000 shares of
common stock issued and outstanding. In addition:
o E-xact has granted stock options
pursuant to which up to 500,000 shares
may be issued in the future pursuant
to E-xact's stock option plan.
o E-xact has granted warrants pursuant to which up
to 847,500 shares may be issued in the future.
USE OF PROCEEDS: The net proceeds from this offering will be $1,595,625.
E-xact's working capital as of October 31, 1999 was
approximately $242,825. The net proceeds from the offering
plus the working capital totals approximately $1,838,450
before expenses, and will be used to pay the costs of this
offering, expand software functionality, extend network
capabilities, recruit management and additional staff, and
to fund general corporate marketing.
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<PAGE>
RISK FACTORS
An investment in E-xact common stock involves certain risks.
Prospective investors should carefully consider the following risk factors, in
addition to all of the other information in this Prospectus, in determining
whether to purchase shares of E-xact stock.
WE HAVE A LIMITED OPERATING AND SALES HISTORY AND EVEN WITH THE OFFERING
PROCEEDS MAY NOT HAVE SUFFICIENT FUNDS TO COVER NECESSARY EXPENSES
E-xact has a limited history of operations that has consisted primarily
of research and development and initial sales of its e-commerce products and
services. Since inception E-xact has financed its operations primarily through
the private placement of equity securities, stockholder loans, and has generated
only limited revenues from sales of its e-commerce products and services.
Whether E-xact can successfully manage the transition to a larger-scale
commercial enterprise will depend upon a number of factors, including expanding
its sales and marketing capabilities. Given the absence of clear market
acceptance with respect to this line of products, there can be no assurance as
to the achievability of projected market penetration rates and associated sales
revenues.
E-xact has expended and will continue to expend substantial funds for
research and development, testing, capital expenditures, manufacturing and
marketing of its products. E-xact currently estimates that it will be necessary
to spend approximately $1,287,000 for the twelve months ending November 2000.
There can be no assurance that cash flow from operations, together with working
capital and net proceeds from this offering will be sufficient to fully fund the
planned expansion of E-xact's operations. If necessary, E-xact may seek
additional funds through equity or debt financing, through collaborative or
other arrangements with other companies and from other sources. If additional
funds are raised by issuing equity securities, further dilution to shareholders
could occur. There can be no assurance that additional financing will be
available when needed or on terms acceptable to E-xact. If adequate funds are
not available, E-xact could be required to delay development or
commercialization of new products, to license to third parties the rights to
commercialize certain products or technologies that E-xact would otherwise seek
to commercialize for itself or to reduce the marketing, customer support or
other resources devoted to certain of its products, each of which could have a
material adverse effect on E-xact's business, financial condition and results of
operations.
WE RELY ON KEY PERSONNEL
E-xact's future success depends in significant part upon the continued
service of certain key technical and management personnel and its continuing
ability to attract and retain highly qualified technical and managerial
personnel. Key personnel of E-xact include Ted Henderson (President and Chief
Executive Officer), Peter Fahlman (Vice President of Business Development),
Robert Roker (Product Manager), and Brian Archer (Development Manager). E-xact
has entered into employment agreements with all key personnel. The employment
agreements with Messrs. Fahlman, Roker, and Archer have an unlimited term
beginning December 1, 1999. The employment agreement with Ted Henderson extends
from September 16, 1999 to September 15, 2000. All of the agreements contain
confidentiality provisions that are unrestricted as to time, and non-competition
and non-solicitation provisions that extend 12 months following the employee's
termination.
Competition for such personnel is particularly intense in the Internet
industry, and there can be no assurance that E-xact can retain its key technical
and managerial personnel or that it can attract, assimilate or
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retain other highly qualified technical and managerial personnel in the future.
The loss of key personnel, especially if without advance notice, or the
inability to hire or retain qualified personnel could have a material adverse
effect upon E-xact's business, financial condition and results of operations.
WE MUST CONTINUALLY DEVELOP AND SELL NEW PRODUCTS IN ORDER TO KEEP UP WITH
TECHNOLOGICAL CHANGES AND RAPIDLY EXPANDING VOLUME OF INTERNET TRAFFIC
The e-commerce software industry is characterized by rapid and
significant technological change. Many software applications have a life cycle
of under twelve months. Product research and development will require
substantial expenditures and will be subject to inherent risks and there can be
no assurance that E-xact will successfully develop or improve products that have
the characteristics necessary to effectively meet the market's needs, or that
any new products introduced will be successfully commercialized.
The e-commerce and real-time electronic credit card payment transaction
processing industries require reliable, efficient high volume transaction
capability. Transaction processing software applications may run efficiently in
low volume transaction processing environments but slow down or cease to operate
in high volume environments or during peak hours of use. E-xact's future success
will depend in large part on whether E-xact's software solutions will adequately
respond to such high volume transaction processing environments in a reliable
and efficient manner. There can be no assurance that E-xact will be successful
in developing or improving products that will be able to process large
transaction volumes in a seamless manner.
WE MAY BE ADVERSELY AFFECTED BY YEAR 2000 ISSUES
The Y2K computer problem refers to the potential for system and
processing failures of date-related data as a result of computer controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
E-xact's e-commerce products and services are being developed to be
fully Y2K compliant, although the effectiveness of present efforts to address
the Y2K issue cannot be assured. In addition, E-xact intends to implement
programs to ensure that all software and hardware used in connection with the
design of its software products and the provision of services to its customers
and suppliers and its internal operations will manage and manipulate data
involving the transition of dates from 1999 to 2000 without functional or data
abnormality. E-xact does not anticipate incurring significant additional costs
to address the Y2K issue, although the effectiveness of its present efforts to
address the Y2K issue cannot be assured. E-xact is in the process of testing its
transaction software with various banks to ensure that transactions will be
processed accurately after December 31, 1999, and expects these tests to be
completed by the mid-December 1999 at a total cost of Cdn. $5,000 to Cdn.
$7,000. E-xact has not yet sought information from third parties, including
their customers and suppliers, with respect to their compliance with the Y2K
issue with respect to their own computer software and hardware. If the present
efforts to address the Y2K issue are unsuccessful, or if other third parties
with which E-xact conducts business do not successfully address the Y2K issue,
the business and financial condition of E-xact could be adversely affected.
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<PAGE>
THE PUBLIC OFFERING PRICE WAS DETERMINED THROUGH NEGOTIATIONS AND MAY NOT BE
RELATED TO THE VALUE OF THE STOCK
The initial public offering price of E-xact's common stock on the
Canadian Venture Exchange of $1.00 per share was arrived at arbitrarily by
negotiation between E-xact and Canaccord, and represents their independent
assessment of the value of the shares being offered. As such, the initial public
offering price is not necessarily related to E-xact's net worth or any other
established criteria of value and may not bear any relationship to the market
price of the shares following the completion of the offering.
THE UNITED STATES PENNY STOCK RULES MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO
SELL THEIR SHARES
Because shares of E-xact common stock will not be quoted on a national
securities exchange in the United States, the shares will be subject to rules
adopted by the U.S. Securities and Exchange Commission regulating broker-dealer
practices in connection with transactions in "penny stocks." Such rules require
that prior to effecting any transaction in a penny stock, a broker or dealer
must give the customer a risk disclosure document that describes various risks
associated with an investment in penny stocks, as well as various costs and fees
associated with such an investment. It is possible that some brokers may be
unwilling to engage in transactions of shares of E-xact common stock because of
these added disclosure requirements, which would make it more difficult for a
purchaser in this offering to sell his shares.
LISTING THE STOCK ON THE CANADIAN VENTURE EXCHANGE DOES NOT ASSURE A MARKET FOR
THE SHARES AT ALL TIMES
[The shares of E-xact common stock have been approved for listing on
the Canadian Venture Exchange and will be primarily traded on that Exchange.]
The rules of the Canadian Venture Exchange do not require any market maker or
specialist to maintain a market for the listed shares at all times. Therefore,
the Exchange listing does not assure a stockholder that there will be a
purchaser for this shares when the stockholder wishes to sell.
THE POTENTIAL SUPPLY OF MARKETABLE SHARES FOR IMMEDIATE SALE MAY ADVERSELY
IMPACT THE MARKET PRICE OF THE SHARES
Concurrently with the registration of the shares offered under this
prospectus, E-xact has registered under the U.S. securities laws approximately
2,907,000 shares of its common stock that are presently owned by the
shareholders. All of those shares were initially purchased by the shareholders
in private transactions between September 1998 and October 1999. Although some
of these shares are subject to restrictions on their sale for periods of time
specified by the Canadian Venture Exchange, it is anticipated that approximately
776,000 of these shares, in addition to those offered in the public offering
would be immediately available for sale to the public, thus adding to the supply
of shares in the market. If a significant portion of those shares are offered
for sale within a short period of time, the price of the shares in the market
would likely decline. If the supply substantially exceeds the demand, it might
become impossible to find buyers for all the shares that are being offered,
which would likely further depress the price and, perhaps, make it impossible
for you to sell all of your shares as quickly as you may desire.
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DILUTION
The following sets forth the dilution per share (as of September 30,
1999) after giving effect to this offering:
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Effective price of Common Shares offered hereunder: $1.00
Net tangible book value before the offering: 0.02
Increase in net tangible book value attributable to the offering: 0.19
Net tangible book value after the offering: 0.21 0.21
--------
Dilution to investor: 0.79
Dilution to investor (as a percentage): 79%
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The calculations in the table above do not give effect to the
subsequent receipt of $260,000 of private placement proceeds for 520,000 shares,
the possible exercise by Bolder Venture Partners LLC of outstanding warrants to
purchase up to 675,000 shares of common stock at prices varying between $0.50 to
a price to be determined by a follow on private placement, or the possible
exercise of a warrant to purchase 172,500 shares held be Canaccord Capital Corp.
at a price of $1.00 per share. If all currently exercisable or convertible
derivative securities were to be exercised to the extent that we know what the
share price would be, then the issuance of common stock underlying them would
have a $0.05 per share effect on the dilution calculation above. In such a case,
the "Dilution to investor" and the Dilution to investor (as a percentage) in the
table above would read $0.74 and 74%, respectively. If all such exercisable or
convertible derivative securities are exercised after completion of this
offering, then there would be a total of approximately 8,474,500 shares issued
and outstanding.
The Company issued 500,000 employee stock options on ____________ at
$1.00 per share. Since these stock options are subject to Board approval
they have not been included in this dilution calculation.
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USE OF PROCEEDS
The gross proceeds from this offering will be $1,725,000. From these
proceeds, E-xact will pay an aggregate commission of $129,375 to Canaccord.
After deducting the commission and prior to expenses of the offering, the net
proceeds from this offering will be $1,595,625. E-xact's working capital, as of
October 31, 1999 was approximately $242,825.(1) The gross proceeds from the
offering plus the working capital totals approximately $1,967,825 which will be
used as follows:
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Funds Available: $ 1,967,825
=============
Proposed Uses:
Costs of this Offering:
Consultants $ 26,100
Legal Fees $ 110,400
Accounting Fees $ 60,000
Registration Fees $ 1,000
Listing Fees $ 2,000
Transfer Agent Fees $ 2,000
Printing $ 1,000
Agent's Commission $ 129,375
Capital Expenditures to Accommodate Staff Increases and to Extend 208,000
Network Capabilities: $
Management and Staff Recruitment, Hiring and Contracting:
Management and Administration: $ 302,000
Marketing and Sales: $ 143,000
Technical Development: $ 525,000
Marketing: $ 109,000
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Working Capital to Fund Ongoing Operations and Unallocated Working 348,950
Capital: $
-------------
$ 1,967,825
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(1) Proceeds of $260,000 representing consideration for subscriptions for
520,000 shares of E-xact common stock were received as of October 31, 1999
and have been included in the calculation of working capital.
E-xact will spend the funds available to it upon completion of this
offering to further E-xact's business objectives set out in "Description of
Business."
The use of proceeds described above represents E-xact's best estimate
of its allocation of the Funds Available based upon the current state of its
business operations, its current plans and current economic and industry
conditions. There may be circumstances where, for sound business reasons, a
reallocation of funds may be necessary in order for E-xact to achieve its
business objectives.
If Canaccord exercises its warrant to purchase up to 172,500 shares at
a price of $1.00 per share, E-xact will receive additional proceeds of up to
$172,500 if exercised at any time up to one year from the Listing Date. If
Canaccord exercises the warrant, the proceeds will also be added to E-xact's
working capital.
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DESCRIPTION OF E-XACT
E-xact was incorporated under the laws of the Province of British
Columbia on August 13, 1998. On July 29, 1999 E-xact filed a Certificate of
Domestication and Certificate of Incorporation with the Secretary of State of
the State of Delaware, thereby "domesticating" or transitioning from a Canadian
company to one organized under the laws of the State of Delaware.
E-xact's principal office is located at 2410 - 555 West Hastings
Street, Vancouver, British Columbia, V6H 4N6 Canada. E-xact's registered agent
in the U.S. is located at 1209 Orange Street, Wilmington, Delaware 19801 USA.
E-xact has no subsidiaries.
DESCRIPTION OF BUSINESS
INTRODUCTION
E-xact offers an electronic commerce, known as "e-commerce," solution
for real-time transaction processing which allows PC based cash registers, PCs,
point-of-sale terminals, computer systems and proprietary product platforms to
accept credit card payments and submit those payments to various payment
processing companies for authorization and settlement/deposit E-xact has
developed software and a network system to act as a third party payment
processor to conduct transaction processing with all major banks in North
America. E-xact is currently approved to conduct transaction processing with all
major banks and credit unions in Canada and has recently opened a gateway with
Vital Processing Services, a U.S.-based credit card processing network, allowing
E-xact to process financial transactions with many of the major banks in the
U.S.
E-xact was founded in 1998, initially as a joint venture between the
Sutton Group Financial Services Ltd. and DataDirect Holdings Inc. On September
1, 1998, each of Sutton Group and DataDirect transferred to E-xact their
respective interests in a computer software system designed by DataDirect, known
as the Transaction Software and Processing System, in exchange for ninety-nine
shares of common stock of E-xact each. The software system offered to real time
credit card transaction processing capabilities for other e-commerce providers.
Version 2.0 provided the ability to move transactional data between
E-xact's system and the Royal Bank of Canada, the largest bank in Canada in
terms of assets and the only financial institution with which it was certified
to process financial transactions at the time. Throughout the autumn of 1998,
E-xact focused on further testing of its system and on designing the system to
easily grow to serve thousands or tens of thousands of customers. Testing was
undertaken with six clients, each focused on a different type of application,
including an Internet based storefront, a physical point-of-sale location, a
telephone based voice response system and a billing system. In January 1999,
E-xact received certification from Shared Network Systems, a firm that processes
financial transactions for most other banks and credit unions in Canada.
Version 3.0 of E-xact's transaction processing component was released
in January 1999. The software allowed other computers to speak to E-xact's
computers. Following this release, E-xact introduced versions for various
computer operating systems including LINUX, UNIX and JAVA.
In June 1999, E-xact released version 4.0 of its software system and it
also established its Internet Web site. Version 4.0 focused on providing
transaction processing, reporting and support services for
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e-commerce merchants. Since that time, E-xact has gained some fifty additional
clients and has begun to develop its marketing plan. E-xact is currently seeking
additional staff qualified to design and build specific technologies to create
additional sales opportunities in the North American transaction processing
arena.
OVERVIEW OF OPERATIONS
Due to the exponential growth of the Internet and e-commerce during the
past few years, the initial target of E-xact's marketing will be focused
primarily towards companies conducting business over the Internet. E-xact can
process transactions in US and Canadian dollars through credit card merchant
accounts for Visa, MasterCard, American Express, Discover, Diners Club, and JCB.
The system is secured by sophisticated encryption technology in addition to the
existing industry standard electronic security such as firewalls. In addition to
the Web-based transaction processing, E-xact also offers transaction processing
via other networks, such as interactive voice response systems. Interactive
voice response makes it possible for people to communicate with a computer using
their touch tone phone. Such a system not only "listens" to a request, it is
also capable of responding without human intervention.
As of the date of this Prospectus, E-xact has released multiple
versions of the software to run on various operating systems. The software does
not require a lengthy installation or integration process; users need only
enable the software within their computer operating environment. Once activated,
merchants are ready to start accepting customer credit cards, provided they have
established a merchant account with a bank for funds settlement.
E-xact also provides merchants a variety of reports with the
transaction processing system, such as a full suite of accounting tools that
help customers manage their e-commerce activities such as detailed billing
statements, transaction search engine, Web point of sale terminals and reporting
services.
In order to leverage its marketing efforts, E-xact offers its
e-commerce transaction processing solution to internet service providers, Web
developers, application developers and financial institutions, which E-xact
refers to as "Partners." E-xact's Partners may receive a percentage of every
transaction fee processed by shared customers and may use E-xact's comprehensive
web tools and services for the benefit of such Partner's clients or e-merchants.
The Partner may apply its own corporate look and branding to these tools and
effectively promote its own brand using E-xact's products and services. E-xact
is in the process of developing a marketing strategy to complement its technical
development plan.
A key advantage of E-xact's transaction processing software is that it
is small (only 300KB) and can easily be integrated with most existing systems.
Additionally, E-xact provides the interface to match a customer's existing
operations rather than requiring them to meet and design their systems to
E-xact's pre-defined protocols, something most major competitors require.
E-xact currently operates with a core group of eight individuals, four
of whom comprise the management team. Mr. Ted Henderson is the President and
Chief Executive Officer, and has over sixteen years of experience in a variety
of high tech sectors. Mr. Peter Fahlman is a founder of E-xact and its Vice
President of Business Development. He has an extensive background in developing
and implementing computer-based solutions. Mr. Robert Roker is a computer
professional with over 10 years experience designing and implementing
financial-based information technology and is the Product Manager. Mr. Brian
Archer is the head of the Development Team. Mr. Archer's computer experience
began in 1981 and he has been involved in many aspects of development and
support.
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THE PRODUCTS
Product/Service Description
E-xact's product/service is a combination of an online service and a
suite of software that act as a real-time payment mechanism for e-commerce,
either over the Internet or via a wide range of other electronic networks.
How the System Works Utilizing the Internet
When a customer makes a purchase using a credit card on the Web site of
a merchant whose e-commerce system incorporates E-xact's transaction component,
the payment information is first sent securely in encrypted format to a secure
computer server. A firewall exists between the Internet and Web
servers/transaction servers to safeguard against any unauthorized intruders.
The encrypted payment information is then sent through another, much
more extensive firewall to E-xact's Gateway Server, from which it is sent onward
to the banking network to be approved or declined. Once approved or declined,
the information is returned back securely to the Web site where only the
customer can see the results. The information regarding each transaction is also
forwarded from E-xact's Gateway Server to a database to be logged as part of an
audit trail. The entire process takes place almost instantaneously, typically in
two to five seconds.
E-xact Transaction Software and Processing System
The current processing system is version 4.0, which was released in
June 1999. It is a combination of custom software applications and processes
that run on the Windows NT Server 4.0 operating system. The primary function of
these applications/processes is to perform real-time credit card transaction
processing through certified links with the Royal Bank and Shared Network
Systems.
E-xact's system has five components:
o Gateway Server
o Transaction Server
o Remote Transaction Component
o Audit Database
o Secure Web-based Merchant Tools
THE GATEWAY SERVER facilitates real-time credit card processing with
any of the major chartered banks and credit unions in Canada. It currently
participates directly with the Royal Bank Merchant Host Network, and also
communicates electronically with the Shared Network Systems network. Through
E-xact's certified connection with Shared Network Systems, the Gateway Server
can process transactions to account holders from any of the major banks in
Canada. The Vital Processing System enables the Gateway Server to process
transactions with many of the banks in the United States.
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THE TRANSACTION SERVER communicates with the Gateway Server and also
provides communications to the Remote Transaction Component. The Transaction
Server resides within E-xact's network and is accessible on the Internet via the
Remote Transaction Component.
THE REMOTE TRANSACTION COMPONENT is a custom software component that
can be installed/ integrated in various computer environments to enable credit
card transaction processing on E-xact's network. Merchants can download this
component from E-xact's web site at WWW.E-XACT.COM in any of four formats,
depending upon which operating system the merchant uses.
Once installed on the user's system, the Remote Transaction Component
will connect via the Internet to E-xact's Transaction Server and subsequently
the Gateway Server and the financial networks. E-xact requires that merchants
have a specific electronic security system known as Secure Socket Layer protocol
operational on their site to provide the security necessary to conduct
transactions securely via the Internet. Encryption is also part of the
component, ensuring that all transmissions between itself and the Transaction
Server are safe from other users on the Internet. The current version of the
Remote Transaction Component processes transactions to all the major Canadian
banks and many of the banks in the United States.
THE AUDIT DATABASE incorporates the added functionality of processing
with the additional Canadian Chartered banks. Specific enhancements are under
development to meet the requirements of processing with VITAL Processing
Services in the United States. Every transaction is processed by the Gateway and
logged to the Audit Database to create an audit trail.
THE SECURE WEB BASED MERCHANT TOOLS are a group of reporting, auditing,
searching and processing functions available to merchants who have the proper
access credentials for E-xact's system. The system can be accessed through any
popular Web browser and data is delivered almost instantly. Added functionality
is available through specific tools such as the Web based point-of-sale terminal
where merchants can process credit card transactions directly to their merchant
account from anywhere on the Internet. Through E-xact's member services on the
Web site, merchants can track every sale for up to three years, check statements
for totals, deposits made and customer spending, among other functions. Security
systems limit access to this information to the merchant authorized for each
account.
Dedicated Transaction Servers
For merchants that require a transaction server that is only used by
them, E-xact can provide a dedicated server to centralize all financially based
transactions within a single organization. The servers allow for local auditing
and reporting of all transactions conducted through the specific server. Using
the Internet (or other communications medium), the merchant can interact
directly with E-xact's Gateway Server for a comprehensive electronic transaction
processing solution, including complete maintenance and audit capabilities.
Non-Web Based Transactions
E-xact also works with clients to integrate transaction processing
services with telephone-based electronic funds transfer and billing services
that do not utilize the Internet. Typically, these systems are closed networks
that do not require the level of additional firewall security as is required for
Internet transactions which can be accessed by anyone in the world. The systems
E-xact has developed can be applied to virtually any type of electronic network.
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Financial Transaction Processing Certification
Certification with transaction processing networks that handle the
financial transactions that E-xact's product/service is designed for is an
integral and necessary part of E-xact being able to offer its services. Banking
and other financial networks operate under stringent regulation which requires
that their computer networks be highly secured in order to protect privacy and
to ensure the integrity of the network. Accordingly, any company that wants to
offer a service that would access an existing banking or financial network must
undergo a comprehensive process of review and testing prior to being approved to
access to the network. Before an applicant company is permitted to go through
this review, the bank or processing system must be satisfied that the company is
capable of handling mission critical processes meeting its requirements, and
that its system will operate correctly and securely.
STAGE OF DEVELOPMENT AND COSTS
E-xact's current Transaction Software and Processing System has been in
full operation since June of 1999. The system is fully operational and
approximately 4,000 transactions are processed per day through E-xact's systems.
Since September 1, 1998, E-xact has processed approximately 363,000
transactions.
Cdn. $280,191 has been spent on product development as of September 30,
1999. Of this amount Cdn. $215,674 has been expensed by E-xact and primarily
includes fees paid to programmers. On September 1, 1998, each of Sutton Group
and DataDirect transferred to E-xact their respective interests in certain
assets designed by DataDirect, known as the Transaction Software and Processing
System, in exchange for ninety-nine shares of E-xact common stock each. The
consideration paid to Sutton Group for its interest in the assets, representing
costs incurred by Sutton Group in the development of the assets, consisted of
ninety-nine common shares issued at a deemed aggregate value of Cdn. $32,515
representing the costs incurred in the development of the assets. The
consideration paid to DataDirect for its interest in the Software System
consisted of ninety-nine common shares, issued at a deemed aggregate value of
Cdn. $32,000 representing the costs incurred in the development of the assets
DEVELOPMENT PLANS
E-xact intends to continue to upgrade and enhance its combined systems
and software focusing on the following key areas.
Further development of the fraud protection and risk assessment aspects
of the system enabling merchants to more securely process online credit cards
with the aid of automated tools to lower the merchant's risk in accepting credit
cards online. Although E-xact's system contains a basic fraud engine, these
additional tools would address issues such as:
o excessive frequency of credit card use;
o over-purchasing limits;
o purchasing from unauthorized locations; and
o fake credit card number generators.
In addition, E-xact is assessing and analyzing the inbound sign-up
process and plans to develop a more streamlined and automated procedure to help
merchants sign-up and engage its services. Specific
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design of a fully automated online sign-up site allowing first time merchants to
download all needed components, information, and automatically pay for E-xact's
services is intended to be deployed to dramatically reduce the cost and time of
acquiring new customers.
Furthermore, E-xact intends to focus development on all mission
critical aspects of the system and address issues pertaining to the growth or
"scale" and the redundancy or "fault tolerant" capabilities of the system as a
whole. Additional components and connections to the system will provide greater
stability and availability of the system to all customers. Microsoft Consulting
Services has been engaged to assist in designing and deploying architecture
capable of processing a significant volume of simultaneous transactions.
E-xact plans to continue to extend the connectivity capabilities of its
system and software in order that transactions can be processed anywhere in the
world. The next targeted gateway certification is with First Data Corporation, a
large transaction processing network in the U.S. This would expand E-xact's
position in the U.S. marketplace by providing broader processing capabilities
and allow service with over 95% coverage of the U.S. banks.
E-xact plans to enhance the merchant account tools including additional
levels of password protection so that access would be restricted to individuals
granted appropriate authorizations, and development of new reporting
capabilities.
THE MARKET FOR THE PRODUCTS
Market Overview
E-commerce
The term "Internet commerce" encompasses the use of the Internet for
marketing, advertising, trading, and selling goods and services. The ability to
use the Internet for marketing and advertising results from the power to
communicate information through the Internet to a large number of individuals,
businesses as well as consumers. The ability to use the Internet to consummate
sales and other commercial transactions results from the power to conduct
two-way communication from merchant to buyer and from buyer to merchant through
the Internet.
Business and the Internet
In order to conduct business over the Internet and accept payment by
credit card, a merchant needs a merchant account. A merchant account is an
identification number that identifies a business that is authorized to process
credit card payments. A merchant account for online sales is different from a
merchant account used in a traditional store.
Transaction Processing
The Internet has opened up new possibilities for processing financial
transactions. While most commerce is still conducted in the physical world, the
exchange of goods and services for payment over the Internet is growing rapidly.
Continued growth of Internet commerce will depend in part on: (1) the ability of
buyers and sellers to use familiar forms of payment online, such as credit and
debit cards and checks, in a simple and secure manner; and (2) the availability
of payment software and services that:
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o securely transmit and store payment information with minimal
interruption of a consumer's online experience;
o are convenient for merchants to install and maintain;
o connect merchants to major payment processors and financial
institutions;
o facilitate familiar types of transactions from the physical
world - (such as bill payment) on the Internet; and
o provide common payment platforms for merchants selling goods
and services both at physical points-of-sale and electronic
storefronts.
MARKETING AND SALES STRATEGY
Overview
To date, E-xact has undertaken virtually no advertising, either
off-line or online to promote E-xact in the e-merchant/Internet marketplace,
other than establishing its Web site.
E-xact is currently in the process of developing a comprehensive
marketing strategy, which will serve to launch its product/service on a wider
scale. E-xact is considering participation in industry trade shows to expand its
exposure, conducting press tours, and generally achieving greater visibility in
the marketplace. A portion of the proceeds of this offering will be used to
develop a sales and marketing strategy tied with further development of the
software product.
E-xact's management has determined that the most effective means by
which to market its transaction processing product/service is to leverage its
direct sales efforts through a number of marketing channels rather than pursue a
mass marketing effort directly to merchants. These channels have been identified
as the primary sources which merchants contact and through which they typically
work in order to establish their Internet e-commerce systems. Firms within these
channels become E-xact Partners. The four market channels which E-xact is
pursuing are:
o Internet service providers;
o Web developers;
o Application developers; and
o Financial institutions and independent sales organizations.
E-xact offers its Partners the following benefits:
o Private label branding;
o The potential for private dedicated network connections;
o Transactional revenue sharing;
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o Ability to package the transaction processing component with
the Partner's software or Web hosting solutions;
o Technical support; and
o Ease of integration.
Partners in these market channels provide the Transaction Processing
Component to the merchant--typically, as if it is part of their own
product/service. For example, a financial institution or internet service
provider can provide the Transaction Processing Component to companies it works
with as part of its e-commerce services. When the merchant logs on to the
financial institution's or internet service provider's Web site to look at his
or her merchant account, the financial institution's or internet service
provider's name and corporate logo or branding appears at the top of the screen
with a company logo also appearing on the page.
Where it is necessary, as with financial institutions that become
Partners, E-xact establishes dedicated network connections in order to ensure
the integrity of the system and to maximize security. Non-Internet based
applications may also require dedicated network connections.
Application developers integrate E-xact's payment capabilities into
their products, seamlessly providing merchants setting up their own e-commerce
Web site with the ability to accept secure payments by credit card over the
Internet.
Pricing
E-xact Partners can share in the revenue generated by processing
customer transactions at each of their client merchant's Web sites. Partners
also may choose whether they would like to administer the service to their
customers or have E-xact bill them directly. E-xact has two pricing structures,
wholesale and retail. Wholesale prices apply to channel distributors such as
internet service providers, Web developers, application developers and financial
institutions. Retail rates apply to businesses selling products or services
directly to consumers.
E-xact charges an activation fee for each merchant credit card account
the customer would like to enable with E-xact (i.e., one for Visa, one for
MasterCard U.S. etc). This fee is charged only once per account. The monthly
service charge is to maintain the merchant account(s) with E-xact's servers.
Included in this charge is access to E-xact's member services that feature tools
such as Internet point of sale terminals, transactional searching, and reporting
tools.
TARGET MARKET CHANNELS
Technical Market Channels: ISPs, Web Developers, Application Developers
E-xact considers internet service providers, Web developers and
application developers as "technical market channels" since they understand
software, servers, connectivity and other aspects necessary for integrating
E-xact's Transaction Processing Component. A key aspect of E-xact's marketing to
these technical channels is the fact that its software is easy to integrate.
E-xact provides an interface to communicate with the most common operating
systems such as JAVA, LINUX, UNIX and COM. This
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reduces the technical barrier and makes it easier for these companies to
incorporate E-xact's transaction processing component with their existing
software and systems.
A second key aspect of E-xact's marketing to these channels is that its
Transaction Processing Component can be virtually transparent to end users of
products and services provided by the companies in these channels. E-xact can be
identified only by a company logo.
Internet service providers present a dual market: 1) providing the
E-xact Transaction Processing Component as part of e-commerce solutions which
they sell to their customers and 2) as users of E-xact's system to handle their
own transaction processing (accepting payment for their Internet access programs
and other services). Due to the volume of transactions possible with internet
service providers, pricing to internet service providers is typically negotiated
on a deal by deal basis.
Web developers can provide E-xact's Transaction Processing Component as
an integrated part of e-commerce solutions that they develop and manage for
clients. For each transaction processed through those e-commerce solutions, the
Web developer can receive a portion of the transaction processing revenue.
Application developers include both those that are developing software
designed for Internet e-commerce and developers of other transaction processing
applications. An example of another transaction processing application would be
a computerized point-of-sale terminal, as where a customer visits a business,
makes a purchase, pays by credit card and the credit card information is entered
into the terminal or a PC by a cashier or sales agent. The transaction is then
sent via the Internet through E-xact to the bank for approval. Although the
approval process travels over the Internet, the actual point of sale may not
have been conducted via the internet.
Financial Institutions
E-xact has been able to take advantage of having first established a
relationship with the Royal Bank to secure additional other clients and to
develop relationships with other financial institutions, such as Shared Network
Services and, more recently, Canadian Imperial Bank of Commerce. Typically,
these relationships can provide many referrals of other direct clients.
Direct Marketing to Merchants
Direct marketing does not currently comprise a major portion of
E-xact's marketing strategy, however, it is taking place via E-xact's Web site
and through word-of-mouth. For over three months, it has been possible to
download E-xact's transaction processing component from its Web site at
WWW.E-XACT.COM. Management reports that an estimated 500 downloads of the
component have taken place to date. These are primarily companies with which
E-xact has had no direct prior contact. Not all of these are processing
transactions through E-xact at this time--frequently the ability to begin
processing is delayed by merchants not yet establishing their credit card
merchant accounts.
In addition, most of E-xact's current client base has made first
contact with E-xact by way of word-of-mouth referrals. Among E-xact's
approximately 75 current clients are the BC Children's Hospital, Lowrider
Records, Internet Direct and the Telelink Paging Network.
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BUSINESS OBJECTIVES AND MILESTONES
The following business objectives and milestones describe the major
goals that E-xact proposes to accomplish in the twelve months following the
completion of this offering.
1. E-xact intends to augment its management team by hiring individuals
with experience in key functional areas. In order to achieve this
objective, the following milestones will have to be met:
o Hire a Controller and a Vice President of Finance in the first
and second quarters of 2000, respectively;
o Hire a Vice President of Technology in the first quarter of
2000;
o Hire a Marketing Manager and a Vice President of Marketing in
the second quarter of 2000; and
o Hire Directors of Customer Service and Technical Support in
the first quarter of 2000.
The total estimated annual cost for these potential expenditures is
$302,000 and is accounted for as part of E-xact's proposed management
and administration expenses.
2. E-xact intends to continue to further develop its software
capabilities, new client acquisition process and Web based Merchant
Reporting Tools. In order to achieve this objective, the following
milestones will have to be met:
o Achieve a second U.S. Gateway certification by end of the
second quarter of 2000;
o Hire additional development programmers or Contractors
beginning in the fourth quarter of 1999;
o Develop automated processes to acquire new clients in the
first quarter of 2000;
o Develop additional fraud prevention and risk assessment
capabilities in the second quarter of 2000; and
o Enhance software scaleability in the first quarter of 2000.
The total estimated annual cost for these expenditures is $525,000 and
is accounted for as part of E-xact's proposed technical development.
3. E-xact will be expanding its personnel and extending network
capabilities in the form of mission critical and fault tolerant systems
and will need to add network hardware and software. In order to achieve
this objective, the following milestones will have to be met:
o Deploy redundant server computers (and associated software)
needed to facilitate E-xact's North American Transaction
Processing network in the first and second quarters of 2000;
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o Deploy scalable, redundant database servers for development and
production environments in the first quarter of 2000; and
o Acquire additional workstations for increased personnel
starting in the fourth quarter of 1999.
The total estimated annual cost for these expenditures is $208,000 and
is accounted for as part of E-xact's proposed capital expenditures.
4. E-xact intends to develop and execute a sales and marketing strategy to
develop channel partners, re-sellers and strategic relationships
resulting in increased sign-ups of "e-merchants" using E-xact's system.
In order to achieve this objective, the following milestones will have
to be met:
o Produce print and electronic media materials to be used by
business development staff, channel re-sellers and customers in
the first and second quarters of 2000;
o Form strategic relationships with identified channel
opportunities in the first and second quarters of 2000; and
o Hire business development staff in the first and second
quarters of 2000.
The total estimated annual cost for these expenditures is $252,000 and
is accounted for as part of E-xact's proposed marketing expenses.
5. E-xact will be establishing larger operational and management
facilities, increased connectivity and communication costs, travel and
other operational costs beginning in the fourth quarter of 1999. The
total estimated annual cost for these expenditures is $131,325 and is
accounted for as part of E-xact's proposed working capital expenses.
COMPETITION
Competition in the Market
The market for Internet commerce software and services is relatively
new, intensely competitive, quickly evolving, and subject to rapid technological
change. Numerous companies are developing e-commerce and online financial
transaction technologies and systems. Key competitors include:
CyberSource Corporation of San Jose, California
CyberSource provides e-commerce transaction processing and other
back-end applications and support to businesses that sell over the Internet. Its
software and services include tax calculation, fulfillment management, and fraud
prevention. The company enables secure, reliable, real-time multi-currency
payment processing in local currencies worldwide.
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CyberCash, Inc. of Reston, Virginia
CyberCash offers secure payment transaction services that encrypt
credit card information. Other offerings include electronic cash payment
software and electronic billing and payment software. CyberCash's complete
payment solutions, which span the traditional retail market to the Internet,
provide electronic commerce solutions for merchants, as well as hardware and
software providers and Internet Service Providers.
Authorize.Net Corporation of Provo, UT
Authorize.Net Corporation develops, markets, and sells Authorize.Net, a
line of products and services that provide solutions for authorizing,
processing, and managing credit card and electronic check transactions over the
Internet. Authorize.Net's transaction processing system sends them on to the
financial institutions for processing.
Internet Secure Inc. of Oakville, Ontario
InternetSecure is a Canadian corporation which provides a secure,
on-line, real-time credit card processing system for Internet merchants.
Internet Secure demonstrated a secure, on-line, real-time credit card processing
system that has been approved by two of the top six banks in Canada. Currently
the company offers Canadian dollar merchant status for Visa, MasterCard and AMEX
and US dollar merchant status for Visa and MasterCard approved and supported by
Canadian and American Banks.
Eliance Corporation of Minneapolis, Minnesota
Eliance focuses on providing its customers with e-commerce solutions
including merchant accounts, POS software and transaction processing as well as
order tracking and fulfillment services.
E-Commerce Exchange of Irvine, California
E-Commerce Exchange is a nationwide credit card processing company,
specializing in merchant account, credit card and electronic check transaction
solutions for non-traditional merchants within the Internet, home-based, phone
order/mail order industries. E-Commerce Exchange focuses on serving
traditionally hard-to-place businesses, such as home-based or new merchants,
business owners with credit problems, high risk businesses, and others which are
considered non-conventional by banks and other credit card processors.
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PATENTS, TRADEMARKS AND COPYRIGHTS
Generally speaking, E-xact relies on general trademark and copyright
law to protect its products. E-xact has not formally registered trademarks or
copyrights nor has it obtained any patent protection for any of its products.
MANAGEMENT
Key personnel of E-xact have signed employment agreements, which
agreements provide for non-disclosure of confidential information following
termination of employment with E-xact and non-competition/ non-solicitation for
a term of one year.
Ted Henderson, Chief Executive Officer and President
Mr. Henderson, age 37, is the President and Chief Executive Officer of
E-xact and has over 16 years expertise in a variety of high-tech sectors. He is
a director of E-xact and is employed on a full-time basis. Mr. Henderson devotes
100% of his time to E-xact and has served in this capacity since October 1999.
Mr. Henderson began his career in public accounting providing business
services to public and private companies, achieving the position of Audit
Manager with Coopers & Lybrand, a leading international public accounting firm.
In 1985, Mr. Henderson became involved in the financial and operations
management of Advanced Management Systems, Inc., a start-up software development
company. He subsequently accepted a controller position with Key Investments
Inc., a KeyCorp company providing full service investment products to the
consumer marketplace. After one and one-half years of service, Mr. Henderson was
promoted to the position of Chief Financial Officer with responsibility for
directing financing and accounting, Management Information Systems and
operations activities of the company. In 1995, Mr. Henderson accepted a finance
and operations management position with Echostar Communications Corp. in which
he helped the company achieve the successful launch of its small dish satellite
service, The Dish Network. Mr. Henderson helped develop and manage the customer
sales and service infrastructure, and actively participated in Echostar's
initial public stock offering and secondary debt offering. In 1997,
Mr. Henderson accepted a position with Centrobe, an EDS company. In February of
1999, he became Vice-President of Business Development and was responsible for
the company's sales engineering efforts to provide outsourced electronic
business solutions to the Fortune 500 companies. Prior to his promotion to this
position, Mr. Henderson provided leadership of strategic planning and
acquisition activities for one year and managed financial results and service
delivery for a business unit.
Mr. Henderson has a Bachelor of Business Administration granted by
Sienna College, Londonville, New York, in 1983, and is a Certified Public
Accountant recognized by the American Institute of CPA's and the New York State
Society of CPA's.
Peter Fahlman, Vice-President
Mr. Fahlman, age 35, is a founder, Vice-President (Business
Development) and director of E-xact, and is currently employed as an independent
contractor on a full time basis.
Mr. Fahlman has over 15 years experience in the computer industry. In
1984, he began programming music using the then new MIDI standard and began
working with regional recording studios in
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1986, with computer aided sequencing software and other MIDI instruments. During
that time period, Mr. Fahlman worked extensively with digital recording
technology and software.
In 1993, Mr. Fahlman formed a relationship with local PC manufacturer
and communications company, Northern Computer Products ("NCP"). He began a
project with NCP preparing the first local access of the Internet in the
Okanagan Valley of British Columbia. During that time, he established a teaching
lab at NCP and began developing courses on how to use the Internet. He also
taught Internet courses at Okanagan College in 1994 and 1995, and worked with
Cybernet Systems in deploying Windows NT as the LAN backbone in the operations
of Hyper Sound, a retail operation specializing in high-tech digital music
instruments. as well as with other Cybernet Systems clients.
Mr. Fahlman joined Cybernet Systems full-time as a Microsoft NT network
consultant in 1995 and left in 1996 to become president of Prophase Digital
Corp., a high-tech spin-off of NRS Block Brothers that offered online print
services to the real estate community under the name of Homenet. During Mr.
Fahlman's tenure, Prophase also undertook other projects including a re-write of
Telecheque Canada processing system using Microsoft Web and SQL technologies
integrated fully with bank processing terminals used in stores (Interac
machines) and establishment of a digital recording studio for AM104 radio.
In 1997, Mr. Fahlman formed DataDirect and DataDirect Consulting
Services with Robert Roker and Brian Archer. The following year, he left
Prophase to focus his interests on DataDirect and its goal to establish itself
as a financial transaction processor and to provide other Internet consulting
activities. In 1998, a joint venture was established between DataDirect and the
Sutton Group, which became E-xact.
Robert Roker, Product Manager
Mr. Roker, age 33, is a co-founder of DataDirect, DataDirect Consulting
Services and of E-xact. He is the Product Manager and is currently employed by
E-xact as an independent contractor on a full time basis.
Mr. Roker is a computer professional with over 10 years experience
designing and implementing financial based information technology. He has
specialized in the development of financial based applications in areas of new
accounting systems, billing and auditing applications for companies such as
Rogers Cantel, BC Tel Mobility, and Westel Telecommunications. In addition, he
has several years of experience as consultant delivering engineering automation
for Rogers Cable and Rogers Shared Services, and significant exposure as a
database analyst responsible for the day-to-day operation of mission critical
corporate information.
Prior to joining E-xact, Mr. Roker was the manager of information
technology for Prophase. During his tenure with Prophase, he led a group of
computer professionals and delivered new facilities for an Internet real estate
search engine and print catalog service called "Homenet", an office management
application for real estate offices called BORAN, and a complete re-engineering
of an authorization network for a company called Telecheck Canada.
Mr. Roker is a graduate of the Computer Systems Technology program at
Langara College and a graduate of Simon Fraser University with a bachelor's
degree in Computer Sciences.
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Brian Archer, Development Manager
Mr. Archer, age 35, is currently employed by E-xact as an independent
contractor on a full time basis. He has been with E-xact since its inception and
his computer experience began in 1981. He had worked with Peter Fahlman since
1995 and Robert Roker since 1996 with Prophase and participated in the founding
of E-xact. Mr. Archer joined Prophase in 1991. During his tenure with Prophase,
his primary responsibility was in support of real estate applications on PCs,
mainframes and wide area communications.
Prior to joining Prophase, Mr. Archer spent several years working in
the mining industry with Cassian Mining Corporation, specializing in ore testing
software. Mr. Archer also worked in the area of software development at the
Prince Rupert Coal Terminal.
PERSONNEL
E-xact currently employs a total of 14 employees comprised of four
full-time employees and 10 full-time and part-time independent contractors. Of
the four full-time employees, two serve in a management and administration
capacity, one serves in a sales and marketing capacity, and one serves as a
software programmer. Of the 10 independent contractors, two serve in a
management and administrative capacity, five serve in a technical development
capacity or as software programmers, and three serve in a customer relations and
customer support capacity.
DESCRIPTION OF OFFICES
E-xact leases approximately 1,300 square feet of space at 2410 - 555
West Hastings Street, Vancouver, B.C., V6H 4N6 under a lease expiring October
31, 2002. The monthly rent under the lease is $3,377.81, inclusive of operating
costs and taxes. All of the employees currently operate out of this office,
although the establishment of U.S. based operations is pending.
-21-
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with E-xact's
financial statements and accompanying notes included elsewhere in this
Prospectus.
INTRODUCTION
E-xact was incorporated under the Company Act of British Columbia,
Canada on August 13, 1998. On July 29, 1999 E-xact was reincorporated in the
state of Delaware, USA. E-xact earns its revenue by charging its customers a
setup fee, a monthly membership fee and a transaction fee. Transaction fees are
based on the number of transactions processed for a particular merchant in a
month.
RESULTS OF OPERATIONS
Period August 13, 1998 to December 31, 1998:
During this period, E-xact's revenue consisted of online transaction
revenue and web development revenue. Revenue from online transactions was
derived mainly from one major customer. The average income per month from this
customer was approximately Cdn. $4,400 per month. There is no contract in place
with this customer. Revenue from web development was derived solely from one
customer. Revenue for the period of Cdn. $21,000 was received in terms of a
development contract.
Period January 1, 1999 to September 30, 1999:
E-xact's total revenue for the nine months ended September 30, 1999 was
Cdn. $80,300 compared to Cdn. $43,000 for the four and a half months ended
December 31, 1998. The average monthly transaction fees increased from Cdn.
$5,000 per month to Cdn. $7,900 per month or 58%. E-xact's focus over the nine
month and prior periods was concentrated on the continued development of its
software system. Its customer base grew via networking and direct contact with
prospective customers. Web site development revenue decreased from Cdn. $20,800
in 1998 to Cdn. $9,000 in 1999. The revenue in both periods was obtained from
one customer. E-xact does not anticipate any further income from this division
as the development contract has since lapsed with this customer. In the future,
E-xact does not intend on pursuing web development as a profit center.
Amortization of capital assets for the period ended September 30, 1999 amounted
to approximately Cdn. $31,800 and Cdn. $40,275 for the period ended December 31,
1998. Programming costs for the period ended September 30, 1999 amounted to Cdn.
$184,237 and Cdn. $7,500 for the period ended December 31, 1998. These figures
are included under R&D. Programming costs were incurred to improve E-xact's
Software System for web based transactions as well as adding a variety of
functions to the existing software. For example, reporting features were
improved and search capabilities were added to allow merchants to query
transactions online. E-xact's databases were redesigned for greater stability
and fault tolerance. E-xact's web site has also been improved to streamline
communications with both existing and potential customers. Included in R&D
expense is equipment lease of Cdn. $6,000 for the four and a half months ended
December 31, 1998 and Cdn. $10,000 for the nine months ended September 30, 1999.
Computer equipment was leased in order to facilitate E-xact's growth.
General and administration ("G&A") expenses for the four and a half
months ended December 31, 1998 was Cdn. $39,300 compared to Cdn. $225,619 for
the nine months ended September 30, 1999.
-22-
<PAGE>
Sales and marketing expenses for the period ended December 31, 1998
included amortization of Cdn. $16,000 of intangible assets acquired from
DataDirect Holdings, Inc. for Cdn. $32,000.
As a result of E-xact's re-incorporation in the State of Delaware on
July 29, 1999, there was a deemed disposition of E-xact's assets for Canadian
income tax purposes. E-xact is liable for income tax on the capital gains of the
deemed disposition. The income tax liability is currently estimated to be
approximately Cdn. $250,000 after allowing for tax losses.
LIQUIDITY AND FINANCIAL CONDITION
Subsequent to the period ended September, 1999 E-xact completed the
private placement of 1,627,000 shares of common stock to raise $813,500
resulting in additional proceeds of $260,000 after deducting share issue
expenses.
In addition to these funds E-xact is expected to raise net funds of
$1,595,625 from the offering described herein, prior to the payment of expenses.
Based on E-xact's business model and funds from both the private placement and
this offering, E-xact believes that there should be sufficient working capital
for the business to operate within the next twelve months without resorting to
equity or debt financing.
Over the next twelve months, E-xact plans on purchasing computer
hardware of approximately $144,000 and software of $64,000. The hardware and
software purchases will be used to support the company's infrastructure and for
further development of its software product.
YEAR 2000 PROBLEM
The Y2K computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
State of Readiness
All E-xact products and upgrades are being developed to be Y2K
compliant. E-xact may, however, be affected by Y2K issues related to
non-compliant internal systems developed by third party vendors. E-xact has not
completed a review of its systems to ensure that they are Y2K compliant. E-xact
is not currently aware of any Y2K problem relating to any of its internal,
material systems. E-xact does not believe that it has any material systems that
contain embedded chips that are not Y2K compliant.
Management believes that absent a systemic failure outside the control
of E-xact, such as a prolonged loss of electrical or telephone service, Y2K
problems at third parties will not have a material impact on the company. E-xact
has no contingency plan for systemic failures such as loss of electrical or
telephone services. E-xact's contingency plan in the event of a non-systemic
failure is to establish relationships with alternative suppliers or vendors to
replace failed suppliers or vendors. E-xact has no other contingency plans or
intention to create other contingency plans.
-23-
<PAGE>
Cost Associated With Y2K Compliance
Costs of testing E-xact's transaction software to ensure it is Y2K
compliant are expected to be approximately Cdn. $5,000 to Cdn. $7,000. Such
expenditures are primarily absorbed within the product development organization.
Based on its overall development expenditure and the amount of time people in
the organization are spending on Y2K compliance, E-xact believes that its
spending on compliance to date has not been material.
Any failure of E-xact to make its products Y2K compliant could result
in a decrease in sales of its products, an increase in allocation of resources
to address Y2K problems of its customers without additional revenue commensurate
with such dedication of resources, or an increase in litigation costs relating
to losses suffered by E-xact's customers due to such Y2K problems. Failure of
E-xact's internal systems could temporarily prevent it from processing orders,
issuing invoices, and developing products, and could require us to devote
significant resources to correcting such problems. E-xact is not aware of any
software supplied by third parties, which is part of the company's processing
system, which is not Y2K compliant. Due to the general uncertainty inherent in
the Y2K computer problem, resulting from the uncertainty of the Y2K readiness of
third party suppliers and vendors, E-xact is unable to determine whether the
consequences of Y2K failures will have a material impact on its business,
results of operations, and financial condition.
-24-
<PAGE>
DESCRIPTION OF SECURITIES
STOCK CAPITAL
The authorized capital stock of E-xact consists of 50,000,000 common
shares of common stock with a par value of $0.001 per share. There are
approximately 55 holders of E-xact common stock and as of the date of this
Prospectus, E-xact had a total of 5,752,000 shares issued and outstanding. All
of the issued shares of E-xact common stock are fully paid and not subject to
any future call or assessment. On September 2, 1999 E-xact's board of directors
authorized a stock split of the authorized and issued share capital of 21,000:1
in preparation for this offering. E-xact has filed an application to list its
common stock on the facilities of the Canadian Venture Exchange.
Under E-xact's Certificate of Incorporation, all of the common shares
rank equally as to voting rights, participation in a distribution of the assets
of E-xact on a liquidation, dissolution or winding-up of E-xact and the
entitlement to dividends. The holders of the common shares are entitled to
receive notice of all meetings of shareholders and to attend and vote the shares
at the meetings. Each share of common stock carries with it the right to one
vote.
In the event of the liquidation, dissolution or winding-up of E-xact or
other distribution of its assets, the holders of the shares of common stock will
be entitled to receive, on a pro rata basis, all of the assets remaining after
E-xact has paid out its liabilities. Distribution in the form of dividends, if
any, will be set by the board of directors.
Provision as to the modification, amendment or variation of the rights
attached to the capital of E-xact are contained in E-xact's Certificate of
Incorporation and the Delaware General Corporation Law. Generally speaking,
substantive changes to the share capital require the approval of the
shareholders by special resolution (at least 75% of the votes cast).
SHARES ELIGIBLE FOR SALE
As of the date of this Prospectus, 5,827,000 shares of common stock of
E-xact are issued and outstanding. These shares are subject to resale
restrictions imposed by the Canadian Venture Exchange, which allows shares to be
released for trading at various times commencing on the date the shares
initially listed for public trading. Pursuant to these regulations the shares
will be released as follows:
Number of Shares Released Time of Release After Date of Listing
----------------------------- -----------------------------------------
813,500 Immediately
813,500 Three Months
1,050,000 Six Months
1,050,000 Nine Months
1,050,000 Twelve Months
1,050,000 Fifteen Months
-25-
<PAGE>
STOCK OWNERSHIP
The following are the shareholdings of the directors, senior officers
and promoters of E-xact and of any other shareholders which, to the knowledge of
E-xact, beneficially own, directly or indirectly, more than five percent of the
issued common shares of E-xact:
<TABLE>
<CAPTION>
Number of Percentage of Issued
Common Shares Percentage of Share Capital After
Name and Municipality of Beneficially Issued Share the Completion of
Residence of Shareholder Owned Capital This Offering
- --------------------------------------- --------------- -------------- -----------------------
<S> <C> <C> <C>
Ted Henderson 50,000 0.86% -0-
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Peter Fahlman(1) 740,000 12.70% 8.35%
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Cliff Mah(2) 107,500 1.84% -0-
1450 Creekside Drive, Suite 800
Vancouver, B.C. V6J 5B3
Canada
Paul MacNeill(3) 12,000 0.21% -0-
c/o Campney & Murphy
Suite 2100
1111 West Georgia Street
Vancouver, British Columbia
Canada
Lance Tracey(4) 493,025 8.46% 5.64%
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Dieter Heidrich(5) 240,000 4.12% -0-
230 Green Rock Drive
Boulder, Colorado 80302
Robert Roker(6) 700,000 12.01% 8.35%
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Brian Archer(7) 350,000 6.01% 4.18%
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
Number of Percentage of Issued
Common Shares Percentage of Share Capital After
Name and Municipality of Beneficially Issued Share the Completion of
Residence of Shareholder Owned Capital This Offering
- --------------------------------------- --------------- -------------- -----------------------
<S> <C> <C> <C>
Daryl Yurek(8) 685,000 11.76% -0-
1327 Spruce Street, Suite 300
Boulder, Colorado 80302
Scott Shaw(9) 450,450 7.73% 5.31%
c/o 1628 555 West Hastings Street
Vancouver, British Columbia V6B 4N6
Canada
[Directors, Officers, Promoters, and 5% 3,827,975 65.70% 31.83%
Shareholders]
</TABLE>
- --------------
(1) 40,000 of these shares are held in the name of Michelle Fahlman, Peter
Fahlman's wife. The remaining shares are beneficially owned through Mr.
Fahlman's ownership of 40% of DataDirect Holdings, Inc. which owns
1,750,000 shares of E-xact common stock.
(2) Includes 67,500 shares that may be acquired prior to the public offering by
exercise of a warrant held by Bolder Venture Partners, LLC, of which Cliff
Mah is a 10% member.
(3) All of these shares are held in the name of Debra Windjack, Mr. MacNeill's
wife.
(4) 20,000 of these shares are held in the name of Shelagh Tracey, Lance
Tracey's wife. The remaining shares are beneficially owned through Mr.
Tracey's ownership of 27.03% of Sutton Group Financial Services Ltd., which
owns 1,750,000 shares of E-xact common stock.
(5) 80,000 of these shares are held jointly with Marie K. Heidrich, Mr.
Heidrich's wife. The remaining shares are beneficially owned through Mr.
Heidrich's position as general partner of the manager of Opus Capital Fund,
LLC, which owns 160,000 shares of E-xact common stock.
(6) These shares are beneficially owned through Mr. Roker's ownership of 40%
of DataDirect Holdings, Inc., which
owns 1,750,000 shares of E-xact common stock.
(7) All of these shares are beneficially owned through Mr. Archer's ownership
of 20% of DataDirect Holdings, Inc.,
which owns 1,750,000 shares of E-xact common stock.
(8) Includes 405,000 shares that may be acquired prior to the public offering
by exercise of a warrant held by Bolder Venture Partners, LLC, of which
Daryl Yurek is a 60% member, and 160,000 shares beneficially owned through
Mr. Yurek's position as general partner of the manager of Opus Capital
Fund, LLC, which owns 160,000 shares of E-xact common stock.
(9) All of these shares are beneficially owned through Mr. Shaw's ownership of
25.74% of Sutton Group financial Services, Ltd., which owns 1,750,000
shares of E-xact common stock.
OPTIONS TO PURCHASE SECURITIES
E-xact's Stock Option Plan was approved by the Company's board of
directors on October 14, 1999 and will be submitted to the Company's
shareholders for approval at a Special Meeting of Shareholders scheduled for
o, 2000.
The Stock Option Plan reserves a maximum of 1,510,000 shares for
issuance. Options granted pursuant to the plan shall vest in accordance with the
terms set forth in each particular grant, but no option shall vest 100% before
the recipient has at least two years of continuous service to E-xact. No option
granted shall be for a term in excess of five years, and the exercise price per
share shall not be less than the average of the closing prices of the common
stock on the Canadian Venture Exchange on the ten trading days immediately
preceding the date of the stock option grant.
-27-
<PAGE>
Pursuant to the terms of the letter agreement dated September 16, 1999
between E-xact and Ted Henderson, Mr. Henderson is eligible to receive options
to purchase up to 500,000 shares of common stock of E-xact at a price of $1.00
per share and which will vest over a 36-month period.
PLAN OF DISTRIBUTION
OFFERING AND APPOINTMENT OF AGENT
By an Agency Agreement dated for reference the 9th day of August, 1999,
E-xact appointed Canaccord Capital Corporation as its agent to offer a total of
1,725,000 shares to non-U.S. persons in Canada through the facilities of the
Canadian Venture Exchange. The shares will be offered at a price of $1.00 per
share on a day, as determined by Canaccord and E-xact, with the consent of the
Canadian Venture Exchange, that is not more than 90 days following the date of
the receipt issued by the British Columbia Securities Commission for the
Prospectus filed in connection with the E-xact's application for listing on the
Canadian Venture Exchange. In accordance with Canadian Venture Exchange rules,
E-xact will receive the net proceeds of the offering within ten business days of
the date the shares are first offered to the public. The offering will be made
in accordance with the rules and policies of the Canadian Venture Exchange.
Under the terms of the Agency Agreement, E-xact has agreed to pay to
Canaccord a commission of $0.075 per share for each share sold from this
offering.
E-xact has filed an application to list its common stock on the
facilities of the Canadian Venture Exchange.
Canaccord has reserved the right to offer selling group participation
in the normal course of the brokerage business to selling groups of other
licensed broker-dealers, brokers and investment dealers who may or may not be
offered part of the commissions or warrants offered to Canaccord (described
below).
The obligations of Canaccord under the Agency Agreement may be
terminated prior to the opening of the market on the day E-xact's shares are to
commence trading on the Canadian Venture Exchange at the discretion of Canaccord
on the basis of its assessment of the state of the financial markets. The Agency
Agreement may also be terminated at any time upon the occurrence of certain
stated events.
AGENT'S GUARANTEE AND WARRANT
Canaccord has agreed to purchase the balance of any shares remaining
unsold on the day E-xact's shares commence trading on the Canadian Venture
Exchange. In consideration of this guarantee, Canaccord has been granted a
warrant.
The warrant entitles Canaccord to purchase up to 172,500 shares at a
price of $1.00 per share at any time up to 5:00 p.m. on the first anniversary of
the Listing Date. The warrant is non-transferable and will contain, among other
things, anti-dilution provisions and provisions for appropriate adjustment for
the class, number and price of shares issuable pursuant to any exercise thereof
upon the occurrence of certain events, including any subdivision, consolidation
or reclassification of the shares or the payment of stock dividends or the
amalgamation of E-xact.
-28-
<PAGE>
Additionally, as consideration for services provided to E-xact by
Canaccord, including providing advice with respect to the structure, timing and
price of the offering, E-xact paid Canaccord a sponsorship fee of $10,000, an
administrative fee of Cdn. $4,000, and a corporate finance fee of 75,000 shares.
The shares of common stock comprising the corporate finance fee and the
shares underlying the Agent's Warrant are being registered pursuant to this
registration statement.
THE PURPOSE OF THIS PROSPECTUS
This prospectus has been included in a registration statement filed
under the U.S. Securities Act of 1933 in order to permit the shares to be
legally sold to the United States purchasers. Copies of this prospectus are
being furnished to each purchaser of the shares, whether in the United States,
Canada, or elsewhere. In addition, the United States securities laws require
that the prospectus be furnished to all subsequent purchasers of the shares from
the date of the U.S. registration statement. Copies of the prospectus will
therefore be made available to any securities broker-dealer who proposes to sell
any of the shares for a customer to a U.S. purchaser.
-29-
<PAGE>
DIRECTORS AND SENIOR OFFICERS
DIRECTORS AND SENIOR OFFICERS
The following is a list of the current directors and senior officers of
E-xact, and their municipalities of residence, current positions with E-xact,
and principal occupations during the past five years:
Name and Municipality Principal Occupation for
of Residence Previous Five Years
- ------------------------- --------------------------------------------------
Ted Henderson(1) President, Chief Executive Officer and a Director
Morrison, Colorado of E-xact since October 4, 1999. Prior to that
he was Vice President of Business
Development from February 1999 to
September 1999; General Manager from
October 1997 to February 1998, and a
director of Corporate Development from
October, 1996 to October, 1997 at
Centrobe (an EDS company), a provider
of end-to-end electronic business
solutions. Prior to that he was
Director of Business Operations at
Echostar Communications Corporation
from April, 1995 to September, 1996, a
publicly held digital broadcast
satellite communications
manufacturing, distribution, and
service provider. Prior to that he was
Senior Vice President and Chief
Financial Officer at Key Investments,
Inc., from September, 1992 to March,
1995, a financial services company.
Peter G. Fahlman Vice-President (Business Development) and a
Delta, B.C. Director of E-xact since September 1, 1998;
partner in Data Direct Consulting
Services, an internet software
development company, since November,
1997; prior to that he was President
of Prophase Development Corp., an
online print services company, from
May 1996 to December 1997; prior to
that he was a consultant to Cybernet
Technologies, from September 1995 to
April 1996; prior to that he was a
partner in Hyper Sound Recording, a
high-tech music retail operation
located in Vernon, British Columbia
from May 1989 to January 1996.
Lance Tracey(1)(2) Secretary and a Director of E-xact since
North Vancouver, B.C. September 1, 1998; President of Code Marketing
Ltd. since January 1990; President and Director
of Sutton Group Realty Services Inc. from
January 1986 to present. President of I.D.
Internet Direct Ltd. from January 1993 to
January 1999.
Dieter Heidrich(2) Managing Director of Opus Capital, LLP, a venture
Boulder, Colorado capital company, since October 1993 and a
Director of E-xact since September 1, 1998.
Prior to that he was a general partner
with Weiss, Peck, and Greer Venture Partners
from October 1986 to October 1993.
-30-
<PAGE>
Name and Municipality Principal Occupation for
of Residence Previous Five Years
- ------------------------- --------------------------------------------------
Cliff Mah(2) Director of E-xact since September 1, 1998.
Vancouver, B.C. Partner with Bolder Venture Partners, LLC,
a venture capital company, since June
1999. Prior to joining Bolder Venture
Partners, he was an investment banker
at Canaccord from November 1998 to May
1999 and at C.M. Oliver and Company
from October 1996 to November 1998.
Prior to that he became, through two
leverage buy-outs, the President and
controlling shareholder of Canadian
Neon Ltd., a Vancouver based
manufacturing company, in 1992 and
Northwest Signs Ltd., a Seattle,
Washington based manufacturing
company, in 1993.
Paul C. MacNeill(1) Partner with Campney & Murphy, Barristers and
West Vancouver, B.C. Solicitors, since 1981 and a Director of E-xact
since September 1, 1998.
Edmund Shung
Vancouver, B.C. Chief Financial Officer of E-xact since November,
1999. Mr. Shung has been the Chief Financial
Officer and Controller of Sutton Group Financial
Services Ltd., a technology based real estate
franchise company, since December 1995. Prior to
that he was President of Totancolor Film Labs
Ltd., a photo processing facility, from October,
1991 to November, 1995.
- --------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Other than receiving stock options from time to time, the directors of
E-xact are not compensated for serving as directors.
Other Associations
During the past five years, the principals of E-xact have served as
principals of the following reporting issuers during the periods and in the
capacities noted below:
<TABLE>
<CAPTION>
Principal Reporting Issuer Capacity Period
- ------------- ------------------------------------- ---------------------- -----------------
<S> <C> <C> <C>
Lance Tracey Sutton Group Financial Services Ltd. Director 01/87 - present
ID Internet Direct Ltd. Director and Officer 01/93 - present
dba Telecom Corp. Director 07/92 - 01/96
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
Principal Reporting Issuer Capacity Period
- ------------- ------------------------------------- ---------------------- -----------------
<S> <C> <C> <C>
Paul C.
MacNeill America Mineral Fields Inc. Director 03/98 - present
Anaconda Uranium Corp. Director 12/97 - present
Axion Communications Inc. Director 08/96 - present
Consolidated Firstfund Capital Corp. Secretary 09/92 - 06/95
Diagem International Resource Corp. Director 12/97 - present
Jordex Resources Inc. Secretary 04/98 - present
Minefinders Corporation Inc. Director 05/95 - present
Minefinders Corporation Inc. Secretary 07/95 - present
Prospex Mining Inc. Director 10/93 - 06/99
Unique Broadband Systems Inc. Director 07/97 - present
Unique Broadband Systems Inc. Secretary 07/97 - 08/97
</TABLE>
-32-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Bolder Venture Partners L.L.C.
E-xact is party to a Consulting Agreement with Bolder Venture Partners
L.L.C. dated July 28, 1999. Bolder Venture Partners is a limited liability
company incorporated under the laws of the State of Colorado and is owned 60% by
Daryl Yurek, and 10% by each of Cliff Mah (a director of E-xact), Ahmad Akrami,
Kent Nuzum and Tom Tennessen.
Under the terms of the Consulting Agreement, Bolder agrees to provide
consulting services to the officers of E-xact relating to matters of corporate
development, strategic planning, raising of capital and other financial matters,
and to assist with certain private placements and public offerings of E-xact's
securities, including this offering.
In consideration of these services, E-xact agreed to pay Bolder Venture
Partners a monthly retainer of $10,000, and purchase warrants to acquire up to
900,000 shares of E-xact for a period of five years from July 28, 1999. 25% of
the warrants were exercised at $0.25 per share on ______________, 1999. The
remaining warrants will be exercisable as follows:
o 25% at $0.50 per share as of October 14, 1999;
o 25% at $1.00 per share upon completion of this offering; and
o 25% at a price per share equal to the price per share under a
future private placement of not less than $3,000,000, if such a
private placement is made.
The term of the Consulting Agreement ends on June 30, 2000.
DataDirect Holdings, Inc.
Under a management agreement dated April 15, 1999 between DataDirect,
Peter Fahlman, Robert Roker, and E-xact, E-xact retained DataDirect to provide
certain management services including services to the ongoing development of
E-xact's software. The term of the agreement commenced April 15, 1999 and was
terminated effective December 1, 1999. E-xact paid DataDirect a monthly fee of
Cdn. $20,000 per month plus G.S.T. (goods and services tax) while the agreement
was in effect.
DataDirect Holdings, Inc., which owns 2,100,000 shares of E-xact common
stock, is owned 40% by Peter Fahlman (E-xact Vice President of Business
Development and Director), 40% by Robert Roker (E-xact Product Manager), and 20%
by Brian Archer (E-xact Development Manager).
Sutton Group Financial Services Ltd.
E-xact has had accounts payable and accrued liabilities due to Sutton
Group Financial Services Ltd. for operating costs paid by Sutton on behalf of
E-xact from time to time. The maximum amount ever due to Sutton was
approximately $41, 000. As of September 30, 1999, all amounts owed by E-xact to
Sutton have been paid in full.
Sutton Group Financial Services Ltd., which owns 2,100,000 shares of
E-xact common stock, is owned 27.03% by Lance Tracey (E-xact Director) and
25.74% by Scott Shaw (E-xact shareholder).
-33-
<PAGE>
EXECUTIVE COMPENSATION
The following table is a summary of the compensation paid to the two
most highly paid executive officers of E-xact during the most recently completed
financial year for services rendered to E-xact:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Long Term
Compensation
---------------
Annual Compensation Awards Payouts
------------------------------ ---------------
Options/
Name and SARS
Principle Other Annual Granted LTIP(1) All Other
Position Period Salary Bonus Compensation (#) Payouts Compensation
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Peter Fahlman, Year ended N/a N/a N/a N/a N/a N/a
President(2) Dec. 31, 1998
- ------------------------------------------------------------------------------------------------------
Ted Henderson(3) N/a N/a N/a N/a N/a N/a
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) "LTIP" or "long term incentive plan" means any plan which provides
compensation intended to serve as incentive for performance to occur over
a period longer than one financial year, but does not include option or
stock appreciation right plans.
(2) Mr. Fahlman has served as the acting Chief Executive Officer while E-xact
conducted a search for permanent chief executive officer. Mr. Fahlman
served in this capacity from August 13, 1998 to October 4, 1999, at which
time he was replaced by Mr. Henderson. Mr. Fahlman did not receive any
compensation for his service as CEO.
(3) Mr. Henderson began serving as the President and Chief Executive Officer
on October 4, 1999. Mr. Henderson will receive an annual salary of
$110,000, and will be eligible to receive a bonus of up to 50% of his
annualized base salary based on the achievement of goals to be mutually
agreed upon between Mr. Henderson and the board of directors of E-xact.
Mr. Henderson is eligible to receive options to purchase up to 500,000
shares of E-xact common stock at an exercise price of $1.00 per share
that will vest over a 36-month period and expire five years from the date
of grant.
-34-
<PAGE>
CAUTIONARY STATEMENT CONCERNING
FORWARD LOOKING STATEMENTS
We have made certain forward-looking statements in this document and in
the documents referred to in this document which are subject to risks and
uncertainties. These statements are based on the beliefs and assumptions of the
management of the companies and on the information currently available to such
management. Forward-looking statements include information concerning possible
or assumed future results of E-xact. These statements may be preceded by,
followed by, or otherwise include the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and stockholder
values of E-xact may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict. Investors are
cautioned not to put undue reliance on any forward-looking statements. Except
for their ongoing obligations to disclose material information as required by
the federal securities law, we do not have any intention or obligation to update
forward-looking statements after this Prospectus is delivered, even if new
information, future events or other circumstances have made them incorrect or
misleading.
You should understand that various factors, in addition to those
discussed elsewhere in this document and in the documents referred to in this
document, could affect the future results of the combined company following the
merger and could cause results to differ materially from those expressed in such
forward-looking statements.
DIVIDEND RECORD AND POLICY
E-xact has not paid any dividends since incorporation and it has no
plans to pay dividends in the immediate future. E-xact expects to retain its
earnings to finance further growth and, when appropriate, retire debt. The
directors of E-xact will determine if and when dividends should be declared and
paid in the future based on E-xact's financial position at the relevant time.
All of the shares of E-xact are entitled to an equal share in any dividends
declared and paid.
EXPERTS
The financial statements included in this prospectus and the related
financial statement schedules included elsewhere in the registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
LEGAL MATTERS
E-xact knows of no material pending legal proceedings to which E-xact
is or is likely to be a party or to which any of its properties are or are
likely to be the subject.
-35-
<PAGE>
Campney & Murphy, Barristers and Solicitors, 2100-1111 West Georgia
Street, Vancouver, British Columbia, Canada, V7X 1K9 has served as legal counsel
of E-xact in connection with the offering of the securities in Canada on the
Canadian Venture Exchange.
The validity of the securities offered will be passed upon for E-xact
by Davis, Graham & Stubbs LLP, Denver, Colorado.
WHERE YOU CAN FIND MORE INFORMATION
You may read and copy any reports, statements or other information that
we file with the Securities and Exchange Commission at the SEC's public
reference rooms in Washington, D.C.; New York, New York; and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1 (800) SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the Securities and Exchange Commission at
"http://www.sec.gov."
-36-
<PAGE>
OUTSIDE BACK COVER
Until ___________ __, 2000, all dealers that effect transactions in
these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
-37-
<PAGE>
THIS INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT DELIVER THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 21, 1999
SELLING STOCKHOLDER
PROSPECTUS
2,907,000 Shares
[GRAPHIC OMITTED]
E-XACT TRANSACTIONS LTD.
Common Stock, $.001 par value
------------------------------------------
E-xact Transactions Ltd. is a software development company that offers
a simple, electronic commerce solution for real time transaction processing over
the Internet combined with a suite of value added merchant services. E-xact's
computer software allows computer controlled cash registers, personal computers,
personal computer based point-of-sale terminals, computer systems, and
proprietary product platforms to accept credit card payments and submit those
payments to processing centers for authorization and settlement.
The common stock may be offered and sold from time to time by the
Selling Stockholders through underwriters, dealers, agents, or directly to one
or more purchasers in fixed price offerings, in negotiated transactions, at
market prices prevailing at the time of sale or at prices related to such market
prices. The terms of the offering and sale of common stock in respect of which
this Prospectus is being delivered, including any initial public offering price,
any discounts, commissions, or concessions allowed or paid to underwriters,
dealers, or agents, the purchase price of the common stock and the proceeds to
the Selling Stockholders, and any other material terms shall be set forth in a
Prospectus Supplement.
All 2,907,000 shares of common stock of E-xact Transactions Ltd.
offered hereby are being offered for sale by the Selling Stockholders identified
herein. See "Selling Stockholders." E-xact will not receive any proceeds from
the sale of the common stock by the Selling Stockholders.
------------------------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" LOCATED AT ALTERNATE PAGES 4 TO 6.
--------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is o, 1999
<PAGE>
TABLE OF CONTENTS
Page
Summary.............................................................Alternate 3
Risk Factors........................................................Alternate 4
Selling Stockholders................................................Alternate 7
Plan of Distribution................................................Alternate 14
Use of Proceeds.....................................................Alternate 14
Cautionary Statement Concerning Forward Looking Statements..........Alternate 14
Dividend Record and Policy..........................................Alternate 15
Experts.............................................................Alternate 15
Legal Matters.......................................................Alternate 15
Where You Can Find More Information.................................Alternate 15
Alternate 2
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To better understand
the offering, you should read this entire document and the documents we have
referred you to. Unless otherwise indicated, all dollar amounts are expressed in
U.S. dollars.
BUSINESS OF E-XACT: E-xact is a software development company that offers a
simple electronic commerce, also known as "e-commerce,"
solution for real time transaction processing combined
with a suite of value added merchant services. E-xact's
software allows computer controlled cash registers,
personal computers, personal computer based point-of-sale
terminals, computer systems and proprietary product
platforms to accept credit card payments and submit those
payments to payment processing centers for authorization
and settlement.
E-xact's principal office is located at
2410-555 West Hastings Street,
Vancouver, British Columbia (Canada)
V6H 4N6. The telephone number is (604)
691-1670.
THE OFFERING: Common Stock
Offered by the
Selling Stockholders: 2,907,000 Shares
Use of Proceeds: All proceeds from the offering
will be received by the Selling
Stockholders.
SELLING STOCKHOLDERS: The Selling Stockholders are founders of E-xact or
purchased their shares in a private placement pursuant
to an exemption provided by Regulation D under the
Securities Act of 1933, as amended.
- --------------------------------------------------------------------------------
Alternate 3
<PAGE>
RISK FACTORS
An investment in E-xact common stock involves certain risks.
Prospective investors should carefully consider the following risk factors, in
addition to all of the other information in this Prospectus, in determining
whether to purchase shares of E-xact stock.
WE HAVE A LIMITED OPERATING AND SALES HISTORY AND EVEN WITH THE INITIAL PUBLIC
OFFERING PROCEEDS MAY NOT HAVE SUFFICIENT FUNDS TO COVER NECESSARY EXPENSES
E-xact has a limited history of operations that has consisted primarily
of research and development and initial sales of its e-commerce products and
services. Since inception E-xact has financed its operations primarily through
the private placement of equity securities, stockholder loans, and has generated
only limited revenues from sales of its e-commerce products and services.
Whether E-xact can successfully manage the transition to a larger-scale
commercial enterprise will depend upon a number of factors, including expanding
its sales and marketing capabilities. Given the absence of clear market
acceptance with respect to this line of products, there can be no assurance as
to the achievability of projected market penetration rates and associated sales
revenues.
E-xact has expended and will continue to expend substantial funds for
research and development, testing, capital expenditures, manufacturing and
marketing of its products. E-xact currently estimates that it will be necessary
to spend approximately $1,287,000 for the twelve months ending November 2000.
There can be no assurance that cash flow from operations, together with working
capital and net proceeds from the initial public offering will be sufficient to
fully fund the planned expansion of E-xact's operations. If necessary, E-xact
may seek additional funds through equity or debt financing, through
collaborative or other arrangements with other companies and from other sources.
If additional funds are raised by issuing equity securities, further dilution to
shareholders could occur. There can be no assurance that additional financing
will be available when needed or on terms acceptable to E-xact. If adequate
funds are not available, E-xact could be required to delay development or
commercialization of new products, to license to third parties the rights to
commercialize certain products or technologies that E-xact would otherwise seek
to commercialize for itself or to reduce the marketing, customer support or
other resources devoted to certain of its products, each of which could have a
material adverse effect on E-xact's business, financial condition and results of
operations
WE RELY ON KEY PERSONNEL
E-xact's future success depends in significant part upon the continued
service of certain key technical and management personnel and its continuing
ability to attract and retain highly qualified technical and managerial
personnel. Key personnel of E-xact include Ted Henderson (President and Chief
Executive Officer), Peter Fahlman (Vice President of Business Development),
Robert Roker (Product Manager), and Brian Archer (Development Manager). E-xact
has entered into employment agreements with all key personnel. The employment
agreements with Messrs. Fahlman, Roker, and Archer extend from December 1, 1999
to November 30, 2000. The employment agreement with Ted Henderson extends from
September 16, 1999 to September 15, 2000. All of the agreements contain
confidentiality provisions that are unrestricted as to time, and non-competition
and non-solicitation provisions that extend 12 months following the employee's
termination.
Alternate 4
<PAGE>
Competition for such personnel is particularly intense in the Internet
industry, and there can be no assurance that E-xact can retain its key technical
and managerial personnel or that it can attract, assimilate or retain other
highly qualified technical and managerial personnel in the future. The loss of
key personnel, especially if without advance notice, or the inability to hire or
retain qualified personnel could have a material adverse effect upon E-xact's
business, financial condition and results of operations.
WE MUST CONTINUALLY DEVELOP AND SELL NEW PRODUCTS IN ORDER TO KEEP UP WITH
TECHNOLOGICAL CHANGES AND RAPIDLY EXPANDING VOLUME OF INTERNET TRAFFIC
The e-commerce software industry is characterized by rapid and
significant technological change. Many software applications have a life cycle
of under twelve months. Product research and development will require
substantial expenditures and will be subject to inherent risks and there can be
no assurance that E-xact will be successful in developing or improving products
that have the characteristics necessary to effectively meet the market's needs,
or that any new products introduced will be successfully commercialized.
The e-commerce and real-time electronic credit card payment transaction
processing industries require reliable, efficient high volume transaction
capability. Transaction processing software applications may run efficiently in
low volume transaction processing environments but slow down or cease to operate
in high volume environments or during peak hours of use. E-xact's future success
will depend in large part on whether E-xact's software solutions will adequately
respond to such high volume transaction processing environments in a reliable
and efficient manner. There can be no assurance that E-xact will be successful
in developing or improving products that will be able to process large
transaction volumes in a seamless manner.
WE MAY BE ADVERSELY AFFECTED BY YEAR 2000 ISSUES
The Y2K computer problem refers to the potential for system and
processing failures of date-related data as a result of computer controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
E-xact's e-commerce products and services are being developed to be
fully Y2K compliant, although the effectiveness of present efforts to address
the Y2K issue cannot be assured. In addition, E-xact intends to implement
programs to ensure that all software and hardware used in connection with the
design of its software products and the provision of services to its customers
and suppliers and its internal operations will manage and manipulate data
involving the transition of dates from 1999 to 2000 without functional or data
abnormality. E-xact does not anticipate incurring significant additional costs
to address the Y2K issue, although the effectiveness of its present efforts to
address the Y2K issue cannot be assured. E-xact is in the process of testing its
transaction software with various banks to ensure that transactions will be
processed accurately after December 31, 1999, and expects these tests to be
completed by mid-December 1999 at a total cost of Cdn. $5,000 to Cdn. $7,000.
E-xact has not yet sought information from third parties, including their
customers and suppliers, with respect to their compliance with the Y2K issue
with respect to their own computer software and hardware. If the present efforts
to address the Y2K issue are unsuccessful, or if other third parties with which
E-xact conducts business do not successfully address the Y2K issue, the business
and financial condition of E-xact could be adversely affected.
Alternate 5
<PAGE>
THE UNITED STATES PENNY STOCK RULES MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO
SELL THEIR SHARES
Because shares of E-xact common stock will not be quoted on a national
securities exchange in the United States, the shares will be subject to rules
adopted by the U.S. Securities and Exchange Commission regulating broker-dealer
practices in connection with transactions in "penny stocks." Such rules require
that prior to effecting any transaction in a penny stock, a broker or dealer
must give the customer a risk disclosure document that describes various risks
associated with an investment in penny stocks, as well as various costs and fees
associated with such an investment. It is possible that some brokers may be
unwilling to engage in transactions of shares of E-xact common stock because of
these added disclosure requirements, which would make it more difficult for a
purchaser in this offering to sell his shares.
LISTING THE STOCK ON THE CANADIAN VENTURE EXCHANGE DOES NOT ASSURE A MARKET FOR
THE SHARES AT ALL TIMES
[The shares of E-xact common stock have been approved for listing on
the Canadian Venture Exchange and will be primarily traded on that exchange.]
The rules of the Canadian Venture Exchange do not require any market maker or
specialist to maintain a market for the listed shares at all times. Therefore,
the Canadian Venture Exchange listing does not assure a stockholder that there
will be a purchaser for his shares when the stockholder wishes to sell.
Alternate 6
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of E-xact's common stock as of October 12, 1999, and as
adjusted to reflect the sale of shares being offered hereby, for each of the
Selling Stockholders. Except as otherwise noted, the persons or entities in this
table have sole voting and investing power with respect to all of the shares
owned by them.
<TABLE>
<CAPTION>
Shares
Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- --------------------------------------- ------------ ------------ ------------------- ----------
Shares issued to Sutton Group Financial Services Ltd. and DataDirect Holdings Ltd. in September 1998 in
consideration of software transferred to E-xact.
<S> <C> <C> <C> <C>
DataDirect Holdings Inc.(1) 1,750,000 158,000 1,592,500 20.88%
1610-555 West Hastings Street
Vancouver, B.C.
V6B 4N6
Sutton Group Financial Services Ltd.(2) 1,750,000 158,000 1,592,500 20.88%
1628-555 West Hastings Street
Vancouver, B.C.
V6B 4N6
Acacia Management Services Ltd. (3)
Kuttelgasse 4, CH-8001 700,000 64,000 637,000 8.35%
Zurich, Switzerland
TOTAL 4,200,000 380,000 3,470,000 45.25%
Shares issued to various shareholders in connection with a private placement commencing June 1999 and closing
October 1999.
477928 B.C. Ltd. 50,000 50,000 -0- -0-
5648 Westhaven Road
West Vancouver, B.C.
V7W 1T6 Canada
574733 B.C. Ltd. 10,000 10,000 -0- -0-
c/o 1450 Creekside Drive, Suite 800
Vancouver, B.C.
V6J 5B3 Canada
585231 B.C. Ltd. 50,000 50,000 -0- -0-
3251 West 3rd Avenue
Vancouver, B.C.
V6K 1N5 Canada
Thomas J. Ahmann 15,000 15,000 -0- -0-
2601 Jeweh Lane North
Plymouth, MN 55447
Ahmad Akrami(4) 82,500 105,000 -0- -0-
902 S. Wiley Ct.
Superior, Colorado 80027
</TABLE>
Alternate 7
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- --------------------------------------- ------------ ------------ ------------------- ----------
<S> <C> <C> <C> <C>
Joanne Archer 20,000 20,000 -0- -0-
1508 - 820 5th Avenue, S.W.
Calgary, A.B
T2P ONY Canada
Ann Archibald 30,000 30,000 -0- -0-
1797 Layton Drive
North Vancouver, B.C.
V7H 1X7 Canada
Randy Ayers 6,000 6,000 -0- -0-
10511 Suncrest Drive
Delta, B.C.
V4C 2N1 Canada
Bruce Buckland 6,000 6,000 -0- -0-
7083 114A Street
Delta, B.C.
V4E 1X3 Canada
Glenn R. Butterworth 6,000 6,000 -0- -0-
9346 Romaniuk Drive
Richmond, B.C.
V7E 5G7 Canada
Raymond Gordon Campbell 10,000 10,000 -0- -0-
3166 Point Grey Road
Vancouver, B.C.
V6K 1B2 Canada
Jeannet Clark 3,000 3,000 -0- -0-
2515 Amber Court
Coquitlam, B.C.
V3E 3K8 Canada
Maggie Elliot 10,000 10,000 -0- -0-
9 Amalia Crescent
Belwood, Ontario
N0B 1J0 Canada
Michelle Fahlman 40,000 40,000 -0- -0-
855 55A Street
Delta, B.C.
V4M 3M3 Canada
Ted Henderson 50,000 50,000 -0- -0-
c/o E-xact Transactions Ltd.
1616 - 555 West Hastings Street
Vancouver, B.C.
V6H 4N6 Canada
</TABLE>
Alternate 8
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- --------------------------------------- ------------ ------------ ------------------- ----------
<S> <C> <C> <C> <C>
K. Dieter & Marie K. Heidrich(5) 80,000 80,000 -0- -0-
230 Green Rock Drive
Boulder, Colorado 80302
Brian Leigh Hilder 10,000 10,000 -0- -0-
5295 9th Avenue
Delta, B.C.
V4M 1V8 Canada
William E. Hodal 40,000 40,000 -0- -0-
7999 Berkley Street
Burnaby, B.C.
V5E 4G5 Canada
Chueh-Hui Hsia 240,000 240,000 -0- -0-
#28, Alley 4, Lane 69
Section 5
Ming-seng E. Road
Taipei, Taiwan
Kimberley L. Kipp 10,000 10,000 -0- -0-
RR #1, Port Stanley
Ontario
N5L 1J1 Canada
Amy Lennon 20,000 20,000 -0- -0-
750 Seymour Boulevard
North Vancouver, B.C.
V7J 2J6 Canada
Ben Mah 10,000 10,000 -0- -0-
RR1 - 1306 St. Andrews Road
Gibsons
V0N 1V0 Canada
Cliff Mah(6) 107,500 130,000 -0- -0-
1450 Creekside Drive, Suite 800
Vancouver, B.C.
V6J 5B3 Canada
Jan Mark 10,000 10,000 -0- -0-
110-777 West 7th Avenue
Vancouver, B.C.
V5Z 1B9 Canada
Gary Mathiesen 10,000 10,000 -0- -0-
2795 Palmerston Avenue
West Vancouver, B.C.
V7V 2W9 Canada
</TABLE>
Alternate 9
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- --------------------------------------- ------------ ------------ ------------------- ----------
<S> <C> <C> <C> <C>
Donald Grant McIntosh 8,000 8,000 -0- -0-
103-3555 Westminister Hwy
Richmond, B.C.
V7C 5P6 Canada
Selena C. McLachlan 2,000 2,000 -0- -0-
38-103 Parkside Drive
Port Moody, B.C.
V3H 4Y8 Canada
James William Milne 10,000 10,000 -0- -0-
831 Forrest Drive
Trail, B.C.
V1R 4P9 Canada
Douglas R. Nagely 20,000 20,000 -0- -0-
537-3400 Avenue
Manchester, Kansas 67410-7505
Kent Nuzum(7) 97,500 120,000 -0- -0-
1829 Mapleton Avenue
Boulder, Colorado 80304
James Oleynick 40,000 40,000 -0- -0-
3581 Haida Drive
Vancouver, B.C.
V5M 3Y9 Canada
Opus Capital Fund, LLC 160,000 160,000 -0- -0-
1113 Spruce Street, Suite 506
Boulder, Colorado 80302
Janis Parmar 2,000 2,000 -0- -0-
713 E 4th Street
North Vancouver, B.C.
V7L 1K1 Canada
Sera Rhyane 20,000 20,000 -0- -0-
408-620 Avenue Road
Toronto
M4V 2K8 Canada
Judith Roker 40,000 40,000 -0- -0-
47 - 15860 82nd Avenue
Surrey, B.C.
V3S 8M4 Canada
John T. Rose 200,000 200,000 -0- -0-
13826 Vintage Centre Drive
Houston, Texas 77069
</TABLE>
Alternate 10
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- --------------------------------------- ------------ ------------ ------------------- ----------
<S> <C> <C> <C> <C>
Robert Sali 19,000 19,000 -0- -0-
2535 West 1st Avenue
Vancouver, B.C.
V6K 1G8 Canada
Gregg J. Sedun 10,000 10,000 -0- -0-
2200-885 West Georgia Street
Vancouver, B.C.
V6C 3E8 Canada
Edmund Shung 10,000 10,000 -0- -0-
110-1082 West 8th Avenue
Vancouver, B.C.
V6H 1C4 Canada
Lawrence D. Smith 10,000 10,000 -0- -0-
5566 49th Avenue
Delta, B.C.
V4K 3N8 Canada
William Neal Speight 8,000 8,000 -0- -0-
Box 7, Site 4, RR# 2
Rocky Mountain House
Alberta
T0M 1T0 Canada
Richard Stokes 10,000 10,000 -0- -0-
452 East 7th Street
North Vancouver, B.C.
V7L 1R9 Canada
Grant Sutherland 8,000 8,000 -0- -0-
1600-777 Dunsmuir Street
P.O. Box 10425, Pacific Centre
Vancouver, B.C.
V7Y 1K4 Canada
Tom Tennessen(8) 77,500 100,000 -0- -0-
4870 Menelith Way #202
Boulder, Colorado 80303
Alex Tak-Ming Tam 3,000 3,000 -0- -0-
1289 Tercel Court
Coquitlam, B.C.
V3E 2C3 Canada
</TABLE>
Alternate 11
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- --------------------------------------- ------------ ------------ ------------------- ----------
<S> <C> <C> <C> <C>
Croft Tracey 10,000 10,000 -0- -0-
101-145 West 17th Street
North Vancouver, B.C.
V7M 3G4 Canada
Shelagh Tracey 20,000 20,000 -0- -0-
978 Seymour Boulevard
North Vancouver, B.C.
V7J 2J8 Canada
Wallace Development Corp. 8,000 8,000 -0- -0-
938-Howe Street, 11th floor
Vancouver, B.C.
V6Z 3N9 Canada
Tanyce Westgard 8,000 8,000 -0- -0-
3295 Canterbury Drive
Surrey, B.C.
V4P 2N4 Canada
Grace Wilson 10,000 10,000 -0- -0-
36 Coyne Street
St. Thomas, Ontario
N5R 4K8 Canada
Debra Windjack 12,000 12,000 -0- -0-
c/o 2100-111 West Georgia Street
Vancouver, B.C.
V7X 1K9 Canada
Darryl Yea 8,000 8,000 -0- -0-
5294 Keith Road
West Vancouver, B.C.
V7W 2N1 Canada
Daryl Yurek(9) 525,000 660,000 -0- -0-
1327 Spruce Street, Suite 300
Boulder, Colorado 80302
Jody Yurek 10,000 10,000 -0- -0-
170 Fairview Avenue
St. Thomas
N5R 4Y1 Canada
Paul Yurek 10,000 10,000 -0- -0-
50 Lombard Street
Toronto, Ontario
M5C 2X4 Canada
TOTAL 2,227,000 2,527,000
</TABLE>
- ----------------
Alternate 12
<PAGE>
(1) Reflects share split of 21,000:1 effective September 2, 1999. (2) Reflects
share split of 21,000:1 effective September 2, 1999.
(3) 350,000 shares were purchased from each of DataDirect Holdings, Inc. and
Sutton Group Financial Services Ltd. on __________ ____, 1999.
(4) Includes: (i) 22,500 shares acquired prior to the public offering by
exercise of a warrant held by Bolder Venture Partners, LLC, of which
Mr. Akrami is a 10% member; (ii) 22,500 shares that may be acquired prior
to the initial public offering by exercise of a warrant held by Bolder
Venture Partners, LLC; and (iii) 22,500 shares that may be acquired upon
completion of the initial public offering by exercise of a warrant held by
Bolder Venture Partners, LLC. Shares Beneficially Owned Pre-Offering
excludes warrants to purchase up to 22,500 shares exercisable after the
public offering and expiring five years from the date the shares are
listed for public trading on the Canadian Venture Exchange, but Shares
Offered in the Offering includes such warrant shares.
(5) Excludes 160,000 shares which are deemed to be beneficially owned by
Mr. Heidrich through his position as general partner of the manager of
Opus Capital Fund, LLC, which owns 160,000 shares of E-xact common stock.
(6) Includes: (i) 22,500 shares acquired prior to the public offering by
exercise of a warrant held by Bolder Venture Partners, LLC, of which
Mr. Mah is a 10% member; (ii) 22,500 shares that may be acquired prior to
the initial public offering by exercise of a warrant held by Bolder
Venture Partners, LLC; and (iii) 22,500 shares that may be acquired upon
completion of the initial public offering by exercise of a warrant held by
Bolder Venture Partners, LLC. Shares Beneficially Owned Pre-Offering
excludes warrants to purchase up to 22,500 shares exercisable after the
public offering and expiring five years from the date the shares are
listed for public trading on the Canadian Venture Exchange, but Shares
Offered in the Offering includes such warrant shares.
(7) Includes: (i) 22,500 shares acquired prior to the public offering by
exercise of a warrant held by Bolder Venture Partners, LLC, of which Mr.
Nuzum is a 10% member; (ii) 22,500 shares that may be acquired prior to
the initial public offering by exercise of a warrant held by Bolder
Venture Partners, LLC; and (iii) 22,500 shares that may be acquired upon
completion of the initial public offering by exercise of a warrant held by
Bolder Venture Partners, LLC. Shares Beneficially Owned Pre-Offering
excludes warrants to purchase up to 22,500 shares exercisable after the
public offering and expiring five years from the date the shares are
listed for public trading on the Canadian Venture Exchange, but Shares
Offered in the Offering includes such warrant shares.
(8) Includes: (i) 22,500 shares acquired prior to the public offering by
exercise of a warrant held by Bolder Venture Partners, LLC, of which Mr.
Tennessen is a 10% member; (ii) 22,500 shares that may be acquired prior
to the initial public offering by exercise of a warrant held by Bolder
Venture Partners, LLC; and (iii) 22,500 shares that may be acquired upon
completion of the initial public offering by exercise of a warrant held by
Bolder Venture Partners, LLC. Shares Beneficially Owned Pre-Offering
excludes warrants to purchase up to 22,500 shares exercisable after the
public offering and expiring five years from the date the shares are
listed for public trading on the Canadian Venture Exchange, but Shares
Offered in the Offering includes such warrant shares.
(9) Includes: (i) 135,000 shares acquired prior to the public offering by
exercise of a warrant held by Bolder Venture Partners, LLC, of which
Mr. Yurek is a 10% member; (ii) 135,000 shares that may be acquired prior
to the initial public offering by exercise of a warrant held by Bolder
Venture Partners, LLC; and (iii) 135,000 shares that may be acquired upon
completion of the initial public offering by exercise of a warrant held by
Bolder Venture Partners, LLC. Shares Beneficially Owned Pre-Offering
excludes warrants to purchase up to 135,000 shares exercisable after the
public offering and expiring five years from the date the shares are
listed for public trading on the Canadian Venture Exchange, but Shares
Offered in the Offering includes such warrant shares. Excludes 160,000
shares which are deemed to be beneficially owned by Mr. Yurek through his
position as general partner of the manager of Opus Capital Fund, LLC,
which owns 160,000 shares.
Alternate 13
<PAGE>
PLAN OF DISTRIBUTION
The common stock offered hereby may be sold from time to time to
purchasers directly by the Selling Stockholders. Alternatively, the Selling
Stockholders may from time to time offer the shares through underwriters,
dealers or agents, who may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of the shares for whom they may act as agent. The Selling
Stockholders and any underwriters, dealers or agents that participate in the
distribution of the shares may be deemed to be underwriters and any profit on
the sale of the shares by them and any discounts, commissions or concessions
received by any such underwriters, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. At the time a
particular offer of shares is made, to the extent required, a Prospectus
Supplement will be distributed that will set forth the specific shares to be
sold and the terms of the offering, including the name or names of any
underwriters or dealer agents, any discounts, commissions and other items
constituting compensation from the Selling Stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
The shares may be sold from time to time in one or more transactions at
a fixed offering price that may be changed or at varying prices determined at
the time of sale or negotiated prices.
E-xact has paid substantially all of the expenses incident to the
offering of the shares, other than commissions and discounts of underwriters,
dealers or agents and the fees and expenses of counsel to the Selling
Stockholders.
USE OF PROCEEDS
E-xact will not receive any of the proceeds from the offering. All of
such proceeds will be received by the Selling Stockholders.
CAUTIONARY STATEMENT CONCERNING
FORWARD LOOKING STATEMENTS
We have made certain forward-looking statements in this document and in
the documents referred to in this document which are subject to risks and
uncertainties. These statements are based on the beliefs and assumptions of the
management of the companies and on the information currently available to such
management. Forward-looking statements include information concerning possible
or assumed future results of E-xact. These statements may be preceded by,
followed by, or otherwise include the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and stockholder
values of E-xact may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict. Investors are
cautioned not to put undue reliance on any forward-looking statements. Except
for their ongoing obligations to disclose material information as required by
the federal securities law, we do not have any intention or obligation to update
forward-looking statements after this Prospectus is delivered, even if new
information, future events or other circumstances have made them incorrect or
misleading.
Alternate 14
<PAGE>
You should understand that various factors, in addition to those
discussed elsewhere in this document and in the documents referred to in this
document, could affect the future results of the combined company following the
merger and could cause results to differ materially from those expressed in such
forward-looking statements.
DIVIDEND RECORD AND POLICY
E-xact has not paid any dividends since incorporation and it has no
plans to pay dividends in the immediate future. E-xact expects to retain its
earnings to finance further growth and, when appropriate, retire debt. The
directors of E-xact will determine if and when dividends should be declared and
paid in the future based on E-xact's financial position at the relevant time.
All of the shares of E-xact are entitled to an equal share in any dividends
declared and paid.
EXPERTS
The financial statements included in this prospectus and the related
financial statement schedules included elsewhere in the registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
LEGAL MATTERS
E-xact knows of no material pending legal proceedings to which E-xact
is or is likely to be a party or to which any of its properties are or are
likely to be the subject.
Campney & Murphy, Barristers and Solicitors, 2100-1111 West Georgia
Street, Vancouver, British Columbia, Canada, V7X 1K9 has served as legal counsel
of E-xact in connection with the offering of the securities in Canada on the
Canadian Venture Exchange.
The validity of the securities offered will be passed upon for E-xact
by Davis, Graham & Stubbs LLP, Denver, Colorado.
WHERE YOU CAN FIND MORE INFORMATION
You may read and copy any reports, statements or other information that
we file with the Securities and Exchange Commission at the SEC's public
reference rooms in Washington, D.C.; New York, New York; and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1 (800) SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the Securities and Exchange Commission at
"http://www.sec.gov."
Alternate 15
<PAGE>
OUTSIDE BACK COVER
Until ___________ __, 2000, all dealers that effect transactions in
these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
Alternate 16
<PAGE>
Report and Financial Statements of
E-XACT TRANSACTIONS LTD.
September 30, 1999 and December 31, 1998
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS.......................F-2
BALANCE SHEETS - September 30, 1999 and December 31, 1998...................F-3
STATEMENTS OF OPERATIONS - Nine Months Ended
September 30, 1999 and From Inception
(August 13, 1998) to December 31, 1998....................................F-4
STATEMENTS OF CASH FLOWS -Nine Months Ended
September 30, 1999 and From Inception
(August 13, 1998) to December 31, 1998......................................F-5
STATEMENTS OF SHAREHOLDERS' EQUITY - Nine Months Ended
September 30, 1999 and From Inception (August 13, 1998)
to December 31, 1998........................................................F-6
NOTES TO FINANCIAL STATEMENTS...............................................F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Directors of
E-xact Transactions Ltd.
We have audited the balance sheets of E-xact Transactions Ltd. as at
September 30, 1999 and December 31, 1998 and the statements of operations,
shareholders' equity and cash flows for the nine month period ended
September 30, 1999 and period from inception August 13, 1998 to December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at September 30, 1999 and
December 31, 1998 and the results of its operations and its cash flows for the
nine month period ended September 30, 1999 and period from inception August 13,
1998 to December 31, 1998 in accordance with accounting principles generally
accepted in the United States.
Chartered Accountants
Vancouver, British Columbia
October 29, 1999 (except as to
Note 14 which is as of December 21, 1999)
COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph when the financial statements are affected by
conditions and events that cast substantial doubt on the Company's ability to
continue as a going concern, such as those described in Note 1 to the financial
statements. Our report to the shareholders dated October 29, 1999 (except as to
Note 14 which is as of o) is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditors' report when these are adequately disclosed in the financial
statements.
Chartered Accountants
Vancouver, British Columbia
October 29, 1999 (except as to
Note 14 which is as of December 21, 1999)
F-2
<PAGE>
E-XACT TRANSACTIONS LTD.
BALANCE SHEETS
(Expressed in Canadian Dollars)
================================================================================
September 30, December 31,
1999 1998
------------- ------------
ASSETS
CURRENT
Cash $ 475,945 $ 4,502
Accounts receivable (Note 3) 59,157 18,520
Prepaid expenses and deposits 7,442 6,296
- -------------------------------------------------------------------------------
542,544 29,318
DEFERRED SHARE ISSUE COSTS 143,006 --
ACQUIRED SOFTWARE AND INTANGIBLES 6,064 24,258
(Note 4)
CAPITAL ASSETS (Note 5) 56,157 2,069
- -------------------------------------------------------------------------------
$ 747,771 $ 55,645
===============================================================================
LIABILITIES
CURRENT
Accounts payable and accrued $ 226,452 $ 32,731
liabilities (Note 7)
Due to shareholders (Note 6) -- 10,605
Income taxes payable 250,000 --
- -------------------------------------------------------------------------------
476,452 43,336
COMMITMENTS (Note 11)
SHAREHOLDERS' EQUITY
Common stock, common shares issued
and outstanding (Note 8)
5,307,000 at September 30,
1999 and 4,200,000
at December 31, 1998 5,307 64,517
Additional paid in capital 945,815 --
Accumulated deficit (679,803) (52,208)
- --------------------------------------------------------------------------------
271,319 12,309
- --------------------------------------------------------------------------------
$ 747,771 $ 55,645
===============================================================================
CONTINUING OPERATIONS (Note 1)
See accompanying Notes to the financial statements
F-3
<PAGE>
E-XACT TRANSACTIONS LTD.
STATEMENTS OF OPERATIONS
(Expressed in Canadian Dollars)
================================================================================
From inception
August 13,
Nine Months ended 1998 to
September 30, December 31,
1999 1998
----------------- --------------
REVENUES
Online transactions $ 71,451 $ 22,254
Web development 8,861 20,792
- --------------------------------------------------------------------------------
80,312 43,046
COST OF SALES
Cost of online transactions 19,203 7,835
Cost of web development 4,625 10,052
- --------------------------------------------------------------------------------
23,828 17,887
- --------------------------------------------------------------------------------
EXPENSES
General and administrative expenses 225,619 39,283
Sales and marketing 13,151 17,719
Research and development 195,309 20,365
- --------------------------------------------------------------------------------
434,079 77,367
- --------------------------------------------------------------------------------
NET LOSS BEFORE UNDERNOTED ITEM (377,595) (52,208)
INCOME TAX PROVISION ON REDOMICILE OF
COMPANY (Note 12) 250,000 --
- --------------------------------------------------------------------------------
NET LOSS (627,595) (52,208)
BASIC AND DILUTED LOSS PER SHARE $ (0.15) $ (0.01)
===============================================================================
WEIGHTED AVERAGE NUMBER OF SHARES USED
TO CALCULATE LOSS PER SHARE 4,323,000 3,820,832
===============================================================================
See accompanying Notes to the financial statements
F-4
<PAGE>
E-XACT TRANSACTIONS LTD.
STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
================================================================================
From inception
August 13,
Nine Months ended 1998 to
September 30, December 31,
1999 1998
----------------- --------------
OPERATING ACTIVITIES
Net loss $ (627,595) $ (52,208)
Item not affecting cash
Amortization of capital assets, acquired
software and other intangible assets 31,832 40,275
Warrants issued for financing fees 84,730 --
Net change in non-cash working capital
balances
Accounts receivable (40,637) (18,520)
Prepaid expenses and deposits (1,146) (6,296)
Accounts payable and accrued liabilities 193,720 32,731
Income taxes payable 250,000 --
Advances from shareholders (10,605) 10,605
- -------------------------------------------------------------------------------
(119,701) 6,587
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds on issuance of capital stock, net
of offering costs 801,875 1
Deferred share issue costs (143,006) --
- -------------------------------------------------------------------------------
658,869 1
INVESTING ACTIVITY
Purchase of capital assets (67,725) (2,086)
- -------------------------------------------------------------------------------
NET CASH INFLOW 471,443 4,502
CASH, BEGINNING OF PERIOD 4,502 --
- -------------------------------------------------------------------------------
CASH, END OF PERIOD $ 475,945 $ 4,502
===============================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Common shares issued for acquired software $ -- $ 64,517
and intangibles
See accompanying Notes to the financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
E-XACT TRANSACTIONS LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY
(Expressed in Canadian Dollars)
=====================================================================================================================
Additional Total
Common Stock paid in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
---------------------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for cash 42,000 $ 2 $ -- $ -- $ 2
Issuance of common stock for acquired
software and intangibles (Note 4) 4,158,000 64,515 -- -- 64,515
Net loss -- -- -- (52,208) (52,208)
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 4,200,000 64,517 -- (52,208) 12,309
Reclassification on reincorporation
(Note 8) -- (60,317) 60,317 -- --
Warrants issued for consulting fees
(Note 8(d)) -- -- 84,730 -- 84,730
Issuance of common stock on private
placement, net of offering costs
of $15,700 1,107,000 1,107 800,768 -- 801,875
Net loss -- -- -- (627,595) (627,595)
- ---------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 5,307,000 $ 5,307 $ 945,815 $(679,803) $ 271,319
=====================================================================================================================
</TABLE>
See accompanying Notes to the financial statements
F-6
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
1. DESCRIPTION OF THE BUSINESS AND CONTINUING OPERATIONS
The Company specializes in online financial transaction processing
supporting customers' e-commerce activities.
The Company was initially incorporated on August 13, 1998 under the laws
of British Columbia, Canada. On July 28, 1999 the Company was
reincorporated in the State of Delaware.
The Company was formed through the acquisition of certain software and
other intangible assets from Sutton Group Financial Services ("Sutton")
and Data Direct Holdings Ltd. ("DataDirect"). In consideration for the
acquisition of these assets Sutton and Data Direct, two unrelated
companies, at the time of the acquisition, each received 2,100,000 common
shares (see Note 4).
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company
incurred a net loss of $627,595 in the nine months period ended September
30, 1999 (period from inception August 13, 1998 to December 31, 1998 -
$52,208) and at September 30, 1999 had a working capital deficiency of
$224,798 and capital deficiency of $287,019.
These factors among others indicate that the Company may be unable to
continue as a going concern for a reasonable period of time. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty. The Company's continuation as a
going concern is dependent upon achieving operating levels adequate to
support the Company's cost structure and obtaining adequate financial
resources through a contemplated initial public offering of its shares or
otherwise. The Company expects to have sufficient working capital from
the proceeds of the initial public offering and other contemplated
financing to support its operations during the twelve-month period
subsequent to September 30, 1999. However, there can be no assurance that
such offerings will be successful.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with the
following significant accounting polices.
(a) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and disclosure of contingent
assets and liabilities at the date of the financial statements and
for the periods presented. Estimates are used for, but not limited
to, accounting for doubtful accounts, amortization, income taxes,
and contingencies. Actual results may differ from those estimates.
(b) Research and development costs
All research and development costs are expensed when incurred.
F-7
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) Deferred share issue costs
Share issue costs incurred prior to the issuance of share capital
are deferred and netted against the proceeds when the related shares
are issued.
(d) Acquired software and intangibles
Costs related to acquired software for internal use are capitalized
and are amortized on a straight-line basis over one year, the
estimated period of benefit. Costs related to the acquisition of
other rights are capitalized and are amortized on a straight-line
basis in 1998, the estimated period of benefit. The Company
evaluates the recoverability of its acquired software and intangible
assets whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. An impairment
loss would be recognized when estimates of future cash flows
expected to result from the use of an asset and its eventual
disposition are less than its carrying amount. No impairment in
assets has been identified by the Company in the periods ended
September 30, 1999 and December 31, 1998.
(e) Capital assets and amortization
Capital assets are recorded at cost and amortized over the estimated
useful lives of the assets on the following basis:
Computer software 100% per annum declining balance
Computer equipment 30% per annum declining balance
The Company periodically evaluates the recoverability of its capital
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment
loss would be recognized when estimates of future cash flows
expected to result from the use of an asset and its eventual
disposition are less than its carrying amount. No impairment in
assets had been identified by the Company in the periods ended
September 30, 1999 and December 31, 1998.
(f) Revenue recognition
The Company's revenue is derived from the following sources:
(i) Online transactions
Revenue from the setup, maintenance, and processing of online
transactions is recognized when the services are performed, the
amount of revenue is determinable and collectibility is
reasonably assured.
F-8
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) Revenue recognition (continued)
(ii) Web development
Revenue from services related to web development are recognized
when the services are performed, the amount of revenue is
determinable and collectibility is reasonably assured. Provision
for estimated losses on contracts is recorded when identified.
(g) Comprehensive income
SFAS No. 130, Reporting Comprehensive Income, establishes standards
for the reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. The company has no
comprehensive income items, other than the net loss, in any of the
periods presented.
(h) Business segments
SFAS No. 131, Disclosures about Segments of an Enterprises and
Related Information, establishes standards for reporting,
information about operating segments in annual financial statements.
It also establishes standards for disclosures about products and
services, geographic areas and major customers. Information related
to SFAS No. 131 is contained in Note 13.
(i) Recent accounting pronouncements
In March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position ("SOP") 98-1,
"Accounting for Costs of Computer Software Developed or Obtained for
Internal Use". This SOP was effective for fiscal years beginning
after December 15, 1998. This SOP requires capitalization of certain
costs of computer software developed or obtained for internal use.
The adoption of this statement had no significant effect on the
financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-up Activities. This SOP was effective four years beginning
after December 15, 1998. Under SOP 98-5, the cost of start-up
activities should be expensed as incurred. The adoption of this
statement had no significant effect on the financial position or
results of operations.
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments and
hedging activities SFAS 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. The Financial
Accounting Standards Board have subsequently delayed implementation
of the standard for the financial years beginning after June 15,
2000. The impact on the company's financial statements is not
expected to be material.
F-9
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) Basic and diluted loss per share
Basic loss per share is computed by dividing net loss available to
common shareholders by the weighted average number of common shares
outstanding for the period.
(k) Foreign currency translation
The Company is a Delaware corporation and considers the Canadian
dollar to be the appropriate functional currency for the Company's
operations because the majority of the Company's business is in
Canada, denominated in Canadian dollars. Monetary assets and
liabilities that are not denominated in Canadian dollars are
translated at the exchange rate on the balance sheet date.
Revenues and expenses are translated using average exchange rates
prevailing during the period. Gains and losses on foreign currency
transactions and translation are recorded in the statements of
operations.
The Company periodically reviews in accordance with SFAS 52 the
determination of its functional currency.
3. ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of no allowance for doubtful
accounts at September 30, 1999 and December 31, 1998.
4. ACQUIRED SOFTWARE AND INTANGIBLES
September 30, December 31,
1999 1999
------------- ------------
Acquired software and intangible $ 64,515 $ 64,515
Accumulated amortization
(58,451) (40,257)
-----------------------------------------------------------------------
$ 6,064 $ 24,258
=======================================================================
Effective September 1, 1998, the Company entered into an agreement with
Sutton Group Financial Services Ltd. ("Sutton"), a shareholder, under
which the Company purchased all rights, title and interest in and to
Version 2 of the E-xact Gateway software. The consideration paid for this
asset, representing the costs incurred by Sutton in the development of
this asset, consisted of 2,100,000 common shares at a deemed value of
$32,515 (Note 8).
F-10
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
4. ACQUIRED SOFTWARE AND INTANGIBLES (CONTINUED)
At the same time, the Company entered into an agreement with DataDirect
Holdings Inc. ("DataDirect"), a shareholder, under which the Company
acquired intangible assets consisting of the development rights in and to
Version 2 of E-xact Gateway software as well as certain rights and
customer lists. The consideration for these intangibles, representing the
costs incurred by DataDirect in the development of these assets of
$16,000 for the software rights and $16,000 of other intangible assets,
consisted of 2,100,000 common shares at a deemed value of $32,000 (Note
8).
The acquisition of the software and other intangible has been recorded at
the carrying value in the accounts of the related party.
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------------------------ --------------------
Accumulated Net Book Net Book
Cost Amortization Value Value
------------------------------------ --------------------
<S> <C> <C> <C> <C>
Computer software $ 21,156 $ 7,933 $ 13,223 $ --
Computer equipment
48,656 5,722 42,934 2,069
--------------------------------------------------------------------------------
$ 69,812 $ 13,655 $ 56,157 $ 2,069
================================================================================
</TABLE>
6. DUE TO SHAREHOLDERS
The amounts due to shareholders are unsecured, non-interest bearing and
are repayable under the Company's normal trade terms.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The principal components of accounts payable and accrued liabilities were
as follows:
September 30, 1999 December 31, 1998
------------------- ------------------
Trade payables $ 186,566 $ 17,446
Other accrued liabilities 39,886 15,285
----------------------------------------------------------------------
$ 226,452 $ $ 32,731
======================================================================
F-11
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
8. SHAREHOLDERS' EQUITY
(a) Authorized stock
The Company was initially incorporated on August 13, 1998 under the
laws of British Columbia, Canada with 50,000,000 authorized common
stock with no par value. On July 28, 1999 the Company was
reincorporated in the State of Delaware.
The Company has authorized 50,000,000 common stock with a par value
of $0.001 per share. As a result of the reincorporation and change
to par value shares, $60,317 was reclassified from common stock to
additional paid in capital.
(b) On September 2, 1999 the Company's common stock were split,
twenty-one thousand-for-one. All per share amounts of prior periods
have been adjusted to reflect the split.
(c) Employee Stock Option Plan
Subsequent to September 30, 1999, on October 7, 1999 the Company's
board of directors approved a stock option plan. Under the Employee
Stock Option Plan, a maximum of 1,510,000 shares has been reserved
for issuance.
(d) Warrants
Entered into an agreement with Bolder Venture Partners ("BVP") to
have BVP complete a financing plan which will include an initial
private placement (b), an Initial Public Offering ("IPO") (c), and a
Follow-On Placement. In partial consideration of BVP's services, the
Company will issue BVP warrants to purchase 900,000 shares
exercisable for a period of five years from July 28, 1999, which
will vest in four equal tranches, subject to performance by BVP as
follows:
(i) 25% of the Warrants will be exercisable upon execution by
E-xact of the agreement, at a price of U.S.$0.25 per share
(these Warrants became exercisable on August 28, 1999 and are
outstanding at September 30, 1999);
(ii) 25% of the Warrants will be exercisable upon completion of
the initial private placement, at a price per share equal to
the private placement price (estimated to be U.S.$0.50 per
share) (subsequent to September 30, 1999, on October 14,
1999, these Warrants became exercisable;
(iii) 25% of the Warrants will be exercisable upon completion of
the IPO, at a price per share equal to the IPO price
(estimated to be U.S.$1.00 per share); and
(iv) the final 25% of the Warrants will be exercisable immediately
upon completion of the Follow-On Placement, at a price equal
to the private placement price.
F-12
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
8. SHAREHOLDERS' EQUITY
(d) Warrants (continued)
The first tranche is not contingent on obtaining financing and
therefore will be accounted for as a compensatory finance fee equal
to the fair market value of the stock on August 28, 1999 less the
option price which approximates $84,730. The remaining tranches will
be accounted for in a similar manner except any difference between
the fair value and the option price will be offset against share
capital as receiving the warrants is contingent on raising the
applicable capital. Under this agreement BVP agreed to serve as
corporate and financial advisors to the Company for a period of
twelve months, commencing July 1, 1999 at a rate of $10,000 per
month.
9. FINANCIAL INSTRUMENTS
(a) Fair value
The carrying values of cash, accounts receivable, deposits, accounts
payable and accrued liabilities and amounts due to shareholders, as
reflected in the balance sheet, approximate their respective fair
values as at September 30, 1999 and December 31, 1998 because of the
demand or short-term maturity of these instruments.
(b) Credit risk and economic dependence
The Company is subject to credit risk as it earns revenue from a
limited number of customers. Bad debt experience has not been
significant. During the six months ended September 30, 1999 -
$52,567 (period from inception August 13, 1998 to December 31, 1998
- $22,135) of revenue was derived from a single customer. As at
September 30, 1999 accounts receivable included $16,392
(December 31, 1998 - $5,408) due from a single customer.
(c) Foreign exchange risk
The Company undertakes certain transactions in US dollars and as
such is subject to risk due to fluctuations in exchange rates. The
Company does not use derivative instruments to reduce exposure to
foreign exchange risk.
10. RELATED PARTY TRANSACTIONS
Related party transactions not otherwise disclosed in these financial
statements include:
(a) During the nine months ended September 30, 1999 the Company
paid consulting fees of $110,000 (1998 - Nil) to a corporate
shareholder for research and development services.
(b) As at September 30, 1999 accounts payable and accrued liabilities
include $Nil (December 31, 1998 - $6,499 due to a corporate
shareholder for operating costs paid on its behalf.
F-13
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
11. COMMITMENTS
Future minimum operating lease payment for premises and equipment leases
for the years ending December 31 are due as follows:
September 30, 1999 December 31, 1998
------------------ ------------------
1999 $ 86,225 $ 62,835
2000 106,565 46,565
2001 28,047 28,047
------------------------------------------------------------------------
$ 220,837 $ 137,447
========================================================================
12. INCOME TAXES
The reported income tax provision differs from the amount computed by
applying the Canadian basis statutory rate to the loss before income
taxes. The reasons for this difference and the related tax effects are as
follows:
September 30, 1999 December 31, 1998
------------------ -----------------
Canadian basis statutory
tax rate 45% 45%
Expected income tax recovery $ (169,918) (23,494)
Losses producing no current
tax benefit -- 23,494
Tax provision on redomicile
of company 419,918 --
-----------------------------------------------------------------------
$ 250,000 --
=======================================================================
Deferred income taxes result principally from temporary differences in
the recognition of certain revenue and expense items for financial and
income tax reporting purposes. Significant components of the company's
deferred tax assets and liabilities as of September 30, 1999 and
December 31, 1998 are as follows:
September 30, 1999 December 31, 1998
------------------ -----------------
Deferred income tax assets
Net operating tax loss
carry forwards $ -- $ 23,494
Valuation allowance for
deferred income tax asset
Net deferred income tax
assets -- (23,494)
--
-------------------------------------------------------------------------
Deferred income tax
liabilities $ -- $ --
=========================================================================
On July 28, 1999, the Company was reincorporated in the State of
Delaware. This event resulted in a deemed tax year end and a taxable gain
for Canadian tax purposes, based on the excess of the fair
F-14
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
market value of the Company's assets over their related tax cost.
Accordingly, a provision for the Canadian taxes on the estimated
taxable gain, net of available current tax losses, has been recorded in
the amount of $250,000.
13. SEGMENTED INFORMATION
The Company operates in one segment - electronic commerce services.
The Company attributes revenue among geographical areas based on the
location of the customers. All revenues are derived in Canada. Long-lived
assets include capital assets and are located in Canada.
The Company's customer sales concentration is discussed in Note 9(b).
14. SUBSEQUENT EVENTS
Subsequent to September 30, 1999, the Company:
(a) completed a private placement of 520,000 common stocks for gross
proceeds of U.S.$260,000;
(b) filed a preliminary prospectus with the British Columbia
Securities Commission on December 10, 1999 covering the sale of
1,725,000 common stocks for expected gross proceeds of
U.S.$1,725,000.
In conjunction with this filing, the Company entered into a
Sponsorship Agreement with Canaccord Capital Corporation
("Canaccord"). Under the Sponsorship Agreement, the Company has
agreed to pay Canaccord a sponsorship fee of U.S.$10,000, an
administrative fee of U.S.$4,000 and an agent's commission of 7.5%
of the gross proceeds. In addition, Canaccord has been granted a
warrant to acquire up to 172,500 shares at a price of U.S.$1.00
per share, plus 75,000 common stocks as a corporate finance fee.
(c) approved 500,000 employee stock options to purchase shares of
common stock at U.S.$1.00 per share. The issuance of these
stock options in accordance with the Company's Employee Stock
Option Plan are subject to Board approval.
F-15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Delaware General Corporation Law, the
Certificate of Incorporation of E-xact eliminates the liability of directors to
E-xact or its shareholders for monetary damages for breach of fiduciary duty as
a director, except to the extent otherwise required by the Delaware General
Corporation Law.
(b) The Certificate of Incorporation provides that E-xact will
indemnify each person who was or is made a party to any proceeding by reason of
the fact that such person is or was a director or officer of E-xact against all
expense, liability and loss reasonably incurred or suffered by such person in
connection therewith to the fullest extent authorized by the Delaware General
Corporation Law. E-xact's Bylaws provide for a similar indemnity to directors
and officers of E-xact to the fullest extent authorized by the Delaware General
Corporation Law.
(c) The Certificate of Incorporation also gives E-xact the ability to
enter into indemnification agreements with each of its directors and officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Consultants $ 26,100
Legal Fees $ 110,400
Accounting Fees $ 60,000
Registration Fees $ 1,000
Listing Fees $ 2,000
Transfer Agent Fees $ 2,000
Printing $ 1,000
----------
$ 202,500
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the period from E-xact's incorporation through to the date of
this Prospectus, E-xact has issued the following shares, after giving effect to
the September 2, 1999 stock split of 21,000 to 1:
o E-xact issued 100 shares of common stock to each of DataDirect
Holdings, Inc. and Sutton Group Financial Services, Ltd. on
September 1, 1998 in consideration of the transfer of certain
software assets to E-xact. These shares were subject to a 21,000:1
share split effective September 2, 1999. These shares have been
assigned a deemed price of Cdn. $0.25 per share to reflect the
estimated value of the shares as of June 15, 1999.,
o As of October 31, 1999, E-xact issued 1,627,000 shares of
common stock to a total of 55 individuals at a price per share
of $0.50 to raise seed capital of $776,000.
II-1
<PAGE>
o E-xact issued all presently outstanding shares in exempt
transactions under Section 4(2) of the Securities Act of 1933
and Regulation D, as no public offering was involved.
ITEM 27. EXHIBITS
Exhibit
Number Description of Exhibit
- --------- -------------------------------------------------------------------
1 Agency Agreement dated October 13, 1999 between E-xact Transactions
Ltd. and Canaccord Capital Corporation*
3.1 Certificate of Domestication of E-xact Transactions Ltd.*
3.2 Certificate of Incorporation of E-xact Transactions Ltd.*
3.3 Bylaws*
5.1 Legal Opinion of Davis, Graham & Stubbs LLP**
10.1 Sponsorship Agreement dated August 9, 1999 between E-xact
Transactions Ltd., Inc. and Canaccord Capital Corporation*
10.2 Lease dated April 22, 1999 between Harbour Centre Complex Limited
as attorney-in- fact for Lord Realty Holdings Limited and Privest
Properties Ltd. (Landlord) and E-xact Transactions Ltd.*
10.3 Stock Option Plan*
10.4 Letter Agreement dated September 16, 1999 between E-xact
Transactions Ltd. And Ted Henderson.*
10.5 Letter Agreement dated July 28, 1999 between E-xact Transactions
Ltd. And Bolder Venture Partners, LLC.*
10.6 Management Agreement dated April 15, 1999 between DataDirect
Holdings, Inc. and Peter Fahlman, and Robert Roker, and E-xact
Transactions Ltd.*
10.7 Form of Employment Agreement executed between E-xact Transactions
Ltd. and each of Peter Fahlman, Robert Roker and Brian Archer**
10.8 Confidentiality Agreement dated December 10, 1999 between E-xact
Transactions Ltd. and Ted Henderson**
23 Consent of Deloitte & Touche LLP (chartered accountants)**
- ------------------
* Filed with Registration Statement on Form SB-2 filed October 22, 1999.
** Filed herewith.
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of E-xact pursuant to E-xact's Bylaws or Certificate of
Incorporation, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
II-2
<PAGE>
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned hereby undertakes that:
(1) It will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
(3) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(4) Remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(5) To file a post-effective amendment to include any financial
statements required to be filed pursuant to section 210.3-19 at the start of any
delayed offering or throughout a continuous offering.
(6) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Vancouver, Province of British Columbia, on the 20th day of December, 1999.
E-XACT TRANSACTIONS LTD.
By: /s/ TED HENDERSON
-----------------------------------------------
Name: Ted Henderson
Title: President and Chief Executive Officer
Signatures Title Date
- ----------------------- --------------------- -------------------
/s/ TED HENDERSON
- ---------------------- President and Chief December 20, 1999
Ted Henderson Executive Officer
/s/ PETER GUY FAHLMAN Vice-President and December 20, 1999
- ----------------------- Director
Peter Guy Fahlman
/s/ DIETER HEIDRICH Director December 20, 1999
- -----------------------
Dieter Heidrich
/s/ LANCE TRACEY Director December 20, 1999
- -----------------------
Lance Tracey
/s/ CLIFF MAH Director December 20, 1999
- -----------------------
Cliff Mah
/s/ PAUL C. MACNEILL Director December 20, 1999
- -----------------------
Paul C. MacNeill
/s/ EDMUND SHUNG Chief Financial Officer December 20, 1999
- -----------------------
Edmund Shung
II-4
[LETTERHEAD]
December 21, 1999
E-xact Transactions Ltd.
1610-555 West Hastings Street
Vancouver, British Columbia
Canada V6H 4N6
Re: Registration Statement on Form SB-2
Relating to 4,879,500 shares of Common Stock, $.001 par value
Dear Ladies and Gentlemen:
We have acted as counsel for E-xact Transactions Ltd., a Delaware
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form SB-2 (the "Registration Statement") filed by the
Company with the Securities and Exchange Commission (the "Commission"). The
Registration Statement relates to the registration under the Securities Act of
1933, as amended (the "1933 Act"), of 4,879,500 shares of common stock, $.001
par value of the Company (the "Securities") of which 1,972,500 shares will be
offered for sale by the company and 2,907,000 shares may be sold by the holders
thereof (the "Selling Stockholders").
This opinion is delivered pursuant to the requirements of Item 601(b)(5)
of Regulation S-B under the 1933 Act.
We have examined and relied on originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records and other
instruments, have made such inquiries as the questions of fact of officers and
representatives of the Company and have made such examinations of law as we have
deemed necessary or appropriate for purposes of giving the opinion expressed
below. In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity with the originals of all documents submitted to us as copies.
The following opinions are limited solely to applicable federal law of the
United States of America and the corporate law of the State of Delaware.
Based upon and subject to the foregoing, we are of the opinion that the
securities to be issued by the Company pursuant to the initial public offering
and the securities offered for sale by the Selling Stockholders, as provided in
the Registration Statement, were duly and validly authorized by all necessary
corporate action of the Company, and the shares presently issued are validly
issued, fully
<PAGE>
paid and non-assessable, and the shares to be issued upon the exercise of
warrants upon payment of the warrant exercise price and issuance will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
this firm under the heading "Legal Matters" in the Prospectus included in the
Registration Statement as the counsel who will pass upon the validity of the
Securities. In giving this consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules of the Securities and Exchange Commission.
Very truly yours,
/s/ DAVIS, GRAHAM & STUBBS, LLP
DAVIS, GRAHAM & STUBBS, LLP
-2-
[E-XACT LOGO GRAPHIC]
EMPLOYMENT AGREEMENT
This Agreement is made as of ___________________, between E-XACT
TRANSACTIONS LTD., a Delaware corporation (the "COMPANY"), and ________________
("EMPLOYEE").
WHEREAS, the Company and Employee desire to enter into an agreement to
provide for the terms and conditions of Employee's employment with the Company.
WHEREAS, the success of the business of the Company is dependent on the
goodwill established by the Employee and the Company's directors, executive
officers and employees with the Company's customers and the public generally.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Employee hereby agree as follows:
1. EMPLOYMENT. The Company hereby engages Employee to serve as an employee
of the Company with the title of Development Manager, and Employee agrees to
serve the Company, for the period beginning on the date hereof and until
Separation, in the capacities, and subject to the terms and conditions, set
forth in this Agreement.
(a) SERVICES. During the term of his/her service as an employee of
the Company (the "SERVICE TERM") Employee shall have all of the duties and
responsibilities as may be delegated from time to time by Management. Employee
will devote his/her best efforts and substantially all of his/her business time
and attention (except for vacation periods and periods of illness or other
incapacity) to the business of the Company and its subsidiaries to carry out
his/her responsibilities. Notwithstanding the foregoing, and provided that such
activities do not interfere with the fulfillment of Employee's obligations
hereunder, Employee may serve as a director or trustee of any charitable or
non-profit entity. If Employee is to serve as director or trustee for any other
for-profit entities, Employee shall obtain the consent of the Board of
Directors. Employee shall be entitled to participate in the Company's employee
benefit plans. Employee shall travel to such other locations as may be
reasonably necessary in order to discharge his/her duties hereunder.
(b) SALARY, BONUS AND BENEFITS. During the Service Term, the Company
will pay Employee a base salary (the "ANNUAL BASE SALARY"), as Management may
designate from time to time, at the rate of not less than $_______________ per
annum payable in accordance with the Company's regular payroll practice. The
Annual Base Salary and Options (defined below) shall be subject to review
annually by Management, and may be increased at such time. Payment of the Annual
Base Salary will be subject to source deductions and other deductions required
to be deducted and remitted under applicable provincial, state or federal laws
of Canada or the United States or Company policy. In addition, during the
Service Term, Employee will be provided insurance in the form of health,
accident, life and disability in addition to other benefits approved by the
Board, fifteen days paid vacation or personal days, and all Company scheduled
holidays. Any vacation or personal days not used during each year of employment
shall be forfeited. The Company also will reimburse
<PAGE>
Employee for Employee's reasonable and customary expenses incurred in the
ordinary course of the performance of his/her duties and responsibilities in
accordance with applicable business expense reimbursement policies and
procedures adopted by the Company from time to time. Employee shall be granted
as of the effective date of this Agreement, ___________________ options (the
"OPTIONS") at a strike price of $___________ (U.S.) each. The granting date
shall be Employee's start date with the Company: _______________, 1999.
One-thirty-sixth of the Options vests upon execution of this Agreement, and an
additional 1/36 vests the first day of each month thereafter. All options shall
have a five (5) year exercise date.
2. SEPARATION.
(a) EVENTS OF SEPARATION. Employee's employment with the Company
shall cease upon:
(1) Employee's death.
(2) Employee's disability, which means his/her incapacity due to
physical or mental illness such that he/she is unable to perform his/her
previously assigned duties where (A) such incapacity has been determined to
exist by either (x) the Company's disability insurance carrier or (y) by the
concurring opinions of two licensed physicians (one selected by the Company and
one by Employee), and (B) the Board has determined, based on competent medical
advice, that such incapacity will continue for such period of time of at least
six continuous months and that it would have a material adverse effect on the
Company. Any such separation for disability shall be only as expressly permitted
by the Americans with Disabilities Act.
(3) Separation by the Company upon Management's determination,
in its good faith judgment, that such separation is in the best interests of the
Company. Such Separation will be effective immediately after delivery to
Employee of a written notice from Management that Employee has been terminated
("NOTICE OF SEPARATION") with or without Cause.
(4) Employee's voluntary resignation by the delivery to
Management of a written notice from Employee that Employee has resigned with or
without Good Reason.
(b) RIGHTS ON SEPARATION.
(1) If the Separation is by Employee with Good Reason or a
termination by the Company without Cause, the Company will continue to pay to
Employee a monthly portion of the Annual compensation for a period equal to six
(6) months commencing on the date of Separation (the "SEVERANCE PERIOD") on
regular salary payment dates (the "SEVERANCE PAYMENTS") and all Options shall
vest immediately. The Employee understands that he will be limited to the
aforesaid Severance Payments in lieu of notice of termination and that upon
providing the Employee with such Severance Payments the Company will have
satisfied all of its contractual, common law and statutory obligations. The
Employee will not be entitled to receive any further severance pay, notice,
payment in lieu of notice or damages of any kind and the Employee will not be
entitled to receive any further amounts (except for amounts, if any, accrued
under this Agreement up to the date of Separation and unpaid at the date of
Separation) and the Employee will have thereupon released all claims and
entitlements thereto including, without limitation, any claims and entitlements
under the Employment Standards Act (British Columbia). Severance Payments will
be subject to all source deductions and other deductions required to be deducted
and remitted under applicable provincial, state or federal laws of Canada or the
United States or Company policy.
(2) If the Company terminates Employee's employment for Cause,
if Employee dies or is disabled or if Employee resigns without Good Reason, the
Company's obligations to pay any
-2-
<PAGE>
compensation or benefits under this Agreement will cease effective the date of
Separation with the exception that all Options shall vest immediately upon
Employee's death or disability. Employee's right to receive any other benefits
will be determined under the provisions of applicable plans, programs or other
coverages. The Employee will not be entitled to receive any further amounts
(except for amounts, if any, accrued under this Agreement up to the date of
Separation and unpaid at the date of Separation), severance pay, notice, payment
in lieu of notice or damages of any kind and the Employee will have thereupon
released all claims and entitlements thereto, without limitation.
Notwithstanding the foregoing, the Company's obligation to Employee for
severance pay or other rights under either subparagraphs (1) or (2) above (the
"SEVERANCE PAY") shall cease if Employee is proven in a court of law to be in
violation of the provisions of Sections 3 or 4 hereof. The Severance Pay, if
any, shall be paid by the Company to Employee in equal monthly consecutive
installments payable commencing on the Company's regularly scheduled payroll
date next following the date of Employee's Separation. Until such time as
Employee has received all of his/her Severance Pay, he/she will be entitled to
continue to receive any health, accident, disability and excess life insurance
benefits provided by the Company to Employee under this Agreement.
3. CONFIDENTIAL INFORMATION.
(a) Employee acknowledges that the information, observations and
data obtained by him during the course of his/her employment with or engagement
by the Company concerning the technology, products, business and affairs of the
Company and its affiliates are the property of the Company, including
information concerning acquisition or alliance opportunities in or reasonably
related to the Company's business or industry of which Employee becomes aware
during the Service Term and any Severance Period. Therefore, Employee agrees
that he/she will not disclose to any unauthorized person or use for his/her own
account any of such information, observations or data without Management's prior
written consent unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
Employee's acts or omissions. Employee agrees to deliver to the Company on the
date of Separation, or at any other time the Company may request in writing, all
memoranda, notes, plans, records, reports and other documents (and copies
thereof) relating to the business of the Company and its affiliates (including,
without limitation, all acquisition prospects, lists and contact information)
which he/she may then possess or have under his/her control.
(b) Employee recognizes that the Company has received and in the
future will receive confidential and proprietary information from third parties
subject to a duty on the Company's part to maintain the confidentiality of such
information and, in some cases, to use it only for certain limited purposes.
Employee agrees that he owes the Company and such third parties, both during the
Service Term and thereafter, a duty to hold all such confidential or proprietary
information in the strictest confidence and not to, except as is consistent with
the Company's agreement with the third party, disclose it to any person, firm or
corporation or use it for the benefit of anyone other than the Company or such
third party, unless expressly authorized to act otherwise by the President of
the Company.
4. NONCOMPETITION AND NONSOLICITATION.
(a) NONCOMPETITION. Employee acknowledges that in the course of
his/her employment with or engagement by the Company he/she has and will become
familiar with the Company's trade secrets and with other confidential
information concerning the Company and that his/her services will be of special,
unique and extraordinary value to the Company. Therefore, Employee agrees that,
during the Service Term and any Severance Period, and during the 12-month period
following Employee's resignation without Good Reason or a termination by the
Company for Cause (the "NONCOMPETE PERIOD"), he/she shall not directly or
indirectly own,
-3-
<PAGE>
manage, control, participate in, consult with, render services for, or in any
manner engage in any business competing with the businesses of the Company or
its Subsidiaries or any businesses in which the Company or any of its
Subsidiaries has entertained discussions or has requested and received
confidential information relating to the acquisition of or alliance with such
business by the Company or its Subsidiaries.
(b) NONSOLICITATION. During the Service Term and during the 1 year
following Separation, Employee shall not directly or indirectly through another
entity: (1) induce or attempt to induce any employee of the Company or any
Subsidiary to leave the employ of the Company or such Subsidiary, or in any way
interfere with the relationship between the Company or any Subsidiary and any
employee thereof or (2) induce or attempt to induce any customer, supplier,
licensee or other business relation of the Company or any Subsidiary to cease
doing business with, or modify its business relationship with, the Company or
such Subsidiary, or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company or any
Subsidiary.
(c) ENFORCEMENT. If, at the time of enforcement of Section 3 or 4 of
this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum duration, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area and that
the court shall be allowed to revise the restrictions contained herein to cover
the maximum duration, scope and area permitted by law.
5. OWNERSHIP. All work product done as an employee of the Company (the
"Work Product") shall be considered work(s) made by Employee for hire for the
Company and all worldwide right, title and interest in and to the Work Product,
including all patents, trade secrets, trademarks, copyrights, improvements on
same and other related rights (collectively, the "Proprietary Rights") shall
belong exclusively to the Company and its designees. If by operation or law or
for any other reason any of the Work Product, including all Proprietary Rights,
is not owned in its entirety by the Company automatically upon creation thereof,
then Employee agrees to assign, and hereby assigns, to the Company and its
designees all ownership rights in such Work Product, including all related
intellectual property rights. Employee shall supply, and will ensure that its
associates and agents shall supply, all assistance reasonably requested in
securing for the Company's benefit any Proprietary Rights, and will provide full
information regarding any such item and execute all appropriate documentation
prepared by the Company in applying for or otherwise registering, in the
Company's name, all rights to any such item. Employee does not have and shall
not be deemed to have any right, title, or intent in the Work Product or related
material, whether under trade secrecy, copyright, trademark, patent or related
laws.
6. DEFINITIONS.
"BOARD OF DIRECTORS" or "BOARD" shall mean the board of directors
of the Company.
"CAUSE" shall mean:
(a) Employee's: (1) commission of a felony, or the commission of any
other act or omission involving dishonesty or fraud with respect to the Company
or any of its Subsidiaries or any of their customers or suppliers which has been
proven in a court of law, (2) misappropriation of any substantial funds or
assets of the Company for personal use or (3) engaging in any conduct tending to
bringing the Company or any of its Subsidiaries into substantial public disgrace
or disrepute;
(b) Employee's (1) continued substantial and repeated neglect of
his/her duties, (2) his/her gross negligence or willful misconduct in the
performance of his/her duties hereunder, materially injurious to the reputation,
business or operations of the Company, or (3) his/her substantial and repeated
failure to perform the
-4-
<PAGE>
duties of his/her position as directed by Management so long as that direction
is not in contradiction with the terms of this Agreement;
(c) Employees engaging in conduct constituting "cause" for
Separation under the common law or laws of British Columbia or the United States
of America.
(d) Employee's engaging in conduct constituting a breach of
Section 3 or 4 hereof.
"GOOD REASON" shall mean Employee's resignation from employment with
the Company within 30 days after the failure of the Company to pay an amount
owing to Employee hereunder after Employee has provided the Company with written
notice of such failure and such payment has not thereafter been made within 15
days of the delivery of such written notice.
"MANAGEMENT" shall mean the Chief Executive Officer or his
designee.
"SUBSIDIARY" means any corporation of which the Company owns
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
7. NOTICES. Any notice provided for in this Agreement must be in writing
and must be either personally delivered, mailed by first class United States
mail (postage prepaid) or sent by reputable overnight courier service (charges
prepaid) or by facsimile to the recipient at the address below indicated:
IF TO THE COMPANY:
E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia
Canada V6H 4N6
Attention: Ted Henderson, President and Chief Executive
Officer
Tel. No.: (604) 691-1670
Fax No.: (604) 691-1678
IF TO THE EMPLOYEE:
-------------------------
-------------------------
-------------------------
Tel. No.: ---------------
Fax No.: ---------------
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
8. GENERAL PROVISIONS.
(a) NOT AN EMPLOYMENT CONTRACT. Employee agrees and understands that
nothing in this Agreement shall confer any right with respect to continuation of
employment by the Company, nor shall it
-5-
<PAGE>
interfere in any way with Employee's right or the Company's right to terminate
Employee's employment at any time, with or without cause.
(b) SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) COMPLETE AGREEMENT. This Agreement embodies the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(d) COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by Employee,
the Company and their respective successors and assigns; provided that the
rights and obligations of Employee under this Agreement shall not be assignable.
(f) CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by and construed
in accordance with the internal laws of the State of Colorado, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Colorado or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Colorado.
(g) REMEDIES. Each of the parties to this Agreement will be entitled
to enforce its rights under this Agreement specifically, to recover damages and
costs (including attorney's fees) caused by any breach of any provision of this
Agreement and to exercise all other rights existing in its favor. The parties
hereto agree and acknowledge that money damages may not be an adequate remedy
for any breach of the provisions of this Agreement and that any party may in its
sole discretion apply to any court of law or equity of competent jurisdiction
(without posting any bond or deposit) for specific performance and/or other
injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement.
(h) AMENDMENT AND WAIVER. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company and
Employee.
(i) BUSINESS DAYS. If any time period for giving notice or taking
action hereunder expires on a day which is a Saturday, Sunday or holiday in the
state in which the Company's principal office is located, the time period shall
be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
(j) SEPARATION. This Agreement (except for the provisions of Section
1) shall survive the Separation of Employee's employment with the Company and
shall remain in full force and effect after such Separation.
SIGNATURE PAGE FOLLOWS
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
E-XACT TRANSACTIONS LTD.
By:
---------------------------------------
Name: Ted Henderson
Title: Chief Executive Officer
EMPLOYEE
------------------------------------------
-7-
[E-XACT LOGO GRAPHIC]
CONFIDENTIALITY AGREEMENT
This Agreement is made as of December 10, 1999, between E-XACT
TRANSACTIONS LTD., a Delaware corporation (the "COMPANY"), and Ted Henderson
("EXECUTIVE").
WHEREAS, the success of the business of the Company is dependent on the
goodwill established by the Executive and the Company's directors, executive
officers and employees with the Company's customers and the public generally.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Executive hereby agree as follows:
1. CONFIDENTIAL INFORMATION.
(A) Executive acknowledges that the information, observations and data
obtained by him during the course of his/her employment with or engagement by
the Company concerning the technology, products, business and affairs of the
Company and its affiliates are the property of the Company, including
information concerning acquisition or alliance opportunities in or reasonably
related to the Company's business or industry of which Executive becomes aware
during the Term (as defined in that certain Employment Letter Agreement dated
September 16, 1999 between Executive and the Company). Therefore, Executive
agrees that he/she will not disclose to any unauthorized person or use for
his/her own account any of such information, observations or data without the
Board of Directors' prior written consent unless and to the extent that the
aforementioned matters become generally known to and available for use by the
public other than as a result of Executive's acts or omissions. Executive agrees
to deliver to the Company on the date of termination, or at any other time the
Company may request in writing, all memoranda, notes, plans, records, reports
and other documents (and copies thereof) relating to the business of the Company
and its affiliates (including, without limitation, all acquisition prospects,
lists and contact information) which he/she may then possess or have under
his/her control.
(B) Executive recognizes that the Company has received and in the
future will receive confidential and proprietary information from third parties
subject to a duty on the Company's part to maintain the confidentiality of such
information and, in some cases, to use it only for certain limited purposes.
Executive agrees that he owes the Company and such third parties, both during
the Term and thereafter, a duty to hold all such confidential or proprietary
information in the strictest confidence and not to, except as is consistent with
the Company's agreement with the third party, disclose it to any person, firm or
corporation or use it for the benefit of anyone other than the Company or such
third party, unless expressly authorized to act otherwise by the Board of
Directors.
<PAGE>
2. NONCOMPETITION AND NONSOLICITATION.
(A) NONCOMPETITION. Executive acknowledges that in the course of
his/her employment with or engagement by the Company he/she has and will become
familiar with the Company's trade secrets and with other confidential
information concerning the Company and that his/her services will be of special,
unique and extraordinary value to the Company. Therefore, Executive agrees that,
during the Term and during the 12-month period following Executive's resignation
or a termination by the Company for Cause (as defined in the Employment Letter
Agreement), he/she shall not directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with the businesses of the Company or its Subsidiaries or
any businesses in which the Company or any of its Subsidiaries has entertained
discussions or has requested and received confidential information relating to
the acquisition of or alliance with such business by the Company or its
Subsidiaries.
(B) NONSOLICITATION. During the Term and during the 1 year following
termination, Executive shall not directly or indirectly through another entity:
(1) induce or attempt to induce any employee of the Company or any Subsidiary to
leave the employ of the Company or such Subsidiary, or in any way interfere with
the relationship between the Company or any Subsidiary and any employee thereof
or (2) induce or attempt to induce any customer, supplier, licensee or other
business relation of the Company or any Subsidiary to cease doing business with,
or modify its business relationship with, the Company or such Subsidiary, or in
any way interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company or any Subsidiary.
(C) ENFORCEMENT. If, at the time of enforcement of Section 1 or 2 of
this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum duration, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area and that
the court shall be allowed to revise the restrictions contained herein to cover
the maximum duration, scope and area permitted by law.
3. OWNERSHIP. All work product done as an employee of the Company (the
"Work Product") shall be considered work(s) made by Executive for hire for the
Company and all worldwide right, title and interest in and to the Work Product,
including all patents, trade secrets, trademarks, copyrights, improvements on
same and other related rights (collectively, the "Proprietary Rights") shall
belong exclusively to the Company and its designees. If by operation or law or
for any other reason any of the Work Product, including all Proprietary Rights,
is not owned in its entirety by the Company automatically upon creation thereof,
then Executive agrees to assign, and hereby assigns, to the Company and its
designees all ownership rights in such Work Product, including all related
intellectual property rights. Executive shall supply, and will ensure that its
associates and agents shall supply, all assistance reasonably requested in
securing for the Company's benefit any Proprietary Rights, and will provide full
information regarding any such item and execute all appropriate documentation
prepared by the Company in applying for or otherwise registering, in the
Company's name, all rights to any such item. Executive does not have and shall
not be deemed to have any right, title, or intent in the Work Product or related
material, whether under trade secrecy, copyright, trademark, patent or related
laws.
4. DEFINITIONS.
"BOARD OF DIRECTORS" or "BOARD" shall mean the board of directors of
the Company.
"SUBSIDIARY" means any corporation of which the Company owns
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
-2-
<PAGE>
5. NOTICES. Any notice provided for in this Agreement must be in writing
and must be either personally delivered, mailed by first class United States
mail (postage prepaid) or sent by reputable overnight courier service (charges
prepaid) or by facsimile to the recipient at the address below indicated:
IF TO THE COMPANY:
E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia
Canada V6H 4N6
Attention: Ted Henderson, President and Chief Executive
Officer
Tel. No.: (604) 691-1670
Fax No.: (604) 691-1678
IF TO THE EXECUTIVE:
Ted Henderson
-------------------------
-------------------------
Tel. No.: ---------------
Fax No.: ---------------
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
6. GENERAL PROVISIONS.
(a) NOT AN EMPLOYMENT CONTRACT. Executive agrees and understands that
nothing in this Agreement shall confer any right with respect to continuation of
employment by the Company, nor shall it interfere in any way with Executive's
right or the Company's right to terminate Executive's employment at any time,
with or without cause.
(b) SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) COMPLETE AGREEMENT. This Agreement embodies the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(d) COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
-3-
<PAGE>
(e) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company and their respective successors and assigns; provided
that the rights and obligations of Executive under this Agreement shall not be
assignable.
(f) CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by and construed
in accordance with the internal laws of the State of Colorado, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Colorado or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Colorado.
(g) REMEDIES. Each of the parties to this Agreement will be entitled
to enforce its rights under this Agreement specifically, to recover damages and
costs (including attorney's fees) caused by any breach of any provision of this
Agreement and to exercise all other rights existing in its favor. The parties
hereto agree and acknowledge that money damages may not be an adequate remedy
for any breach of the provisions of this Agreement and that any party may in its
sole discretion apply to any court of law or equity of competent jurisdiction
(without posting any bond or deposit) for specific performance and/or other
injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement.
(h) AMENDMENT AND WAIVER. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company and
Executive.
(i) BUSINESS DAYS. If any time period for giving notice or taking
action hereunder expires on a day which is a Saturday, Sunday or holiday in the
state in which the Company's principal office is located, the time period shall
be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
(j) SEPARATION. This Agreement shall survive the termination of
Executive's employment with the Company and shall remain in full force and
effect after such termination
SIGNATURE PAGE FOLLOWS
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
E-XACT TRANSACTIONS LTD.
By:
---------------------------------------
Name:
Title:
EXECUTIVE
------------------------------------------
Name: Ted Henderson
[DELOITTE & TOUCHE LETTERHEAD]
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm in this Registration Statement of
E-xact Transactions Ltd. on Form SB-2 of our report dated October 29, 1999
(except as to Note 14 which is as of December 21, 1999), which is part of this
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
(Signed) DELOITTE & TOUCHE LLP
Chartered Accountants
Vancouver, British Columbia, Canada
December 21, 1999
